The sun sets over the buildings of the banking district, rear left, and the European Central Bank, front right, in Frankfurt, Germany, Wednesday, Sept. 11, 2024. (AP Photo/Michael Probst)
Frankfurt, Germany — The European Central Bank should keep cutting interest rates gradually, its chief economist said Monday, after policymakers reduced borrowing costs last week for the second time this year.
“A gradual approach to dialling back restrictiveness will be appropriate if the incoming data are in line with the baseline projection,” Philip Lane said in a speech in Luxembourg.
But he stressed policymakers should keep an open mind about “the speed of adjustment”, and it would depend on how fast inflation drops and the state of the eurozone economy.
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“These considerations reinforce the value of a meeting-by-meeting and data-dependent approach that maintains… flexibility for future rate decisions,” he said.
The bank for the 20 countries that use the euro cut its key deposit rate by a quarter point to 3.50 percent Thursday.
The ECB had hiked rates a record pace from mid-2022 to tame surging consumer prices but has started easing the pressure as inflation drifts back down towards its two-percent target.
There have also been signs the eurozone economy is weakening, boosting calls for cuts.
Lane said recent data had been in line with the ECB’s expectations, and the Frankfurt-based institution foresaw “a demand-led economic recovery”.
This had bolstered confidence in moving forward with last week’s cut.
Most economists expect the ECB to hold rates at its next meeting in October before delivering another cut in December.
Inflation in the eurozone — which peaked at over 10 percent in late 2022 — cooled to 2.2 percent in August, its lowest level in more than three years.