Some European Central Bank officials at Thursday’s meeting advocated withdrawing their pledge to maintain tight monetary policy as inflation may now be lower than expected just a few weeks ago, five sources told Reuters.
The idea has not caught on, but it suggests that the debate within the ECB, which on Thursday cut interest rates for the third time this year, is increasingly shifting from the battle against high inflation to the recovery of economic growth in the euro area.
At the meeting, some members suggested that inflation could stabilize at the ECB’s 2% target some quarters before the final three months of next year, as the bank predicted last month, the sources said.
They argued in favor of abandoning a long-standing pledge to keep financing costs “sufficiently restrictive for as long as necessary,” the sources added.
Economists point out that interest rates are restrictive when they are high enough to slow the economy and, with it, inflation, so the change would have signaled that more cuts were coming.
An ECB spokesperson declined to comment.
ECB President Christine Lagarde said during her press conference that inflation will fall to 2% “over the course of next year” and not “in the second half of next year” as she had said after September 12. The bank will publish new projections at its next monetary policy meeting on December 12.
Lagarde gave no clues about the ECB’s future moves, but four sources familiar with the matter told Reuters on Thursday that a fourth cut in December was likely unless economic or inflation data changed in the coming weeks.
However, the US presidential election and the threat of new trade tariffs if Donald Trump is elected are seen as a major source of uncertainty, the sources add.
Source: Terra
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