Policymakers at the European Central Bank (ECB) are divided on whether to consider a significant half-point interest rate cut in December, amidst growing downside risks to both economic growth and inflation. This debate follows the ECB’s recent back-to-back quarter-point rate cuts in October, the first such consecutive cuts in 13 years, as inflation fears subside and growth expectations weaken. The eurozone’s inflation rate was revised down to 1.7% in September, lower than the August rate of 2.2% and below the ECB’s 2% target for the first time since June 2021, fueling expectations for additional rate cuts.
Portuguese central bank governor Mario Centeno indicated that a 50 basis-point cut might be considered if data continues to signal a need, while Dutch ECB Governing Council member Klaas Knot cautioned that any such decision hinges on further data deterioration. ECB President Christine Lagarde mentioned that discussions had centered around a more modest 25-basis point cut, reflecting a cautious stance.
Austrian central bank chief Robert Holzmann expressed skepticism about a larger cut, viewing recent quarter-point reductions as precautionary and suggesting data would drive future decisions. Lithuania’s Gediminas Šimkus echoed this data-dependent approach, signaling likely future cuts but advising against anticipating drastic rate reductions without significant adverse data shifts.
Meanwhile, German Bundesbank head Joachim Nagel emphasized the uncertain economic environment, advocating for a wait-and-see approach. Despite this divergence of opinions, the overarching sentiment among ECB officials is that easing monetary policy is on the horizon, contingent upon forthcoming economic data. Global counterparts have similarly moved towards easing policies as inflation eases in several advanced economies, though the International Monetary Fund recently noted that downside risks remain prevalent.
Original Story https://www.cnbc.com/2024/10/23/european-central-bank-policymakers-split-on-the-need-for-big-rate-cuts.html
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