ECB Should Continue Gradual Interest Rate Cuts

Investing.com — Cypriot policymaker Christodoulos Patsalides advocates for the European Central Bank (ECB) to pursue gradual interest rate cuts, as stated in an interview with Reuters on Thursday. He believes there is no immediate need for the ECB to adjust its policy to stimulate economic growth.

The ECB has been lowering rates for much of this year. Current discussions revolve around how quickly and extensively these cuts should occur. With inflation concerns easing, economic growth remains slow.

Patsalides prefers small, incremental adjustments instead of large cuts, citing uncertainty as a key factor that demands caution. He also warned against sending mixed signals to the markets.

Last week, some policymakers, particularly from southern member states, pushed for a significant 50 basis point cut. However, Patsalides argued that this would only be justified by a sustainable decrease in inflation below the ECB’s 2% target, which he does not expect anytime soon.

While he acknowledged the ongoing downward trend in interest rates, Patsalides did not agree with market predictions of four successive cuts in the first half of 2025. He highlighted that markets can sometimes misinterpret trends and expressed readiness to revise his stance if the situation changes.

Regarding the economy's need for support, Patsalides maintained that the ECB should avoid lowering rates to a level that triggers economic stimulation. He cautioned that doing so could indicate or lead to a recession, which is not reflected in current ECB forecasts.

He referred to the neutral interest rate, which neither encourages nor hinders growth, estimating it to be between 1.5% and 3%. After the ECB recently lowered its deposit rate to 3%, he suggested it is nearing the neutral rate.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.