(Bloomberg) -- European Central Bank Governing Council member Gediminas Simkus said borrowing costs will be reduced further should the downtrend in inflation persist, though he wouldn’t predict the outcome of officials’ next meeting.
“The direction is clear — less restrictive monetary policy,” the Lithuanian central-bank chief said Monday. “I can’t yet tell what will the decision be in December. But the direction is clear — down.”
Investors agree. They’re betting on a spate of interest-rate cuts at the next few meetings with inflation already below the 2% target and the 20-nation euro-zone economy barely growing. A December move is very likely, according to people familiar with the matter.
Simkus said policymakers will have a clearer picture of the economic trends in two months’ time.
“In December, we’ll have much more hard data: GDP, inflation, PMIs, new forecasts,” he told reporters in Vilnius. “All this will provide more data on the pace of the inflation trend — is it moving faster or slower?”
Speaking separately, Latvia’s Martins Kazaks said rates will continue to be decreased as inflation slows to 2%. But amid elevated uncertainty — due to elections in the US and conflicts in Ukraine and the Middle East — decisions will still be taken step by step.
The 2% price goal could be met earlier than previously anticipated, though, he said.
“If inflation was lower than forecast in previous months, it will be important to see if it will be significantly lower than forecast in the following months as well”, Kazaks said in a blog post. “If so, we will probably reach the 2% inflation target in a sustainable manner sooner than the end of next year.”
He reiterated concerns about the labor market, saying layoffs could drive inflation “significantly below target,” though the base case was still that policymakers will engineer a soft landing without a sharp rise in unemployment.
--With assistance from Aaron Eglitis.
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