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ECB Determined to Keep Inflation Below 3%: Strategies and Divergences Among Members

Yannis Stournaras, Governor of the Central Bank of Greece and ECB member, recently stated in an interview with Reuters that the European Central Bank must keep inflation steadily below 3% by mid-next year before considering the possibility of reducing interest rates. His stance reflects the ECB’s determination to counter inflation, currently the worst in the Eurozone in at least a generation.

Divergences Between ECB and Investors

Stournaras’s statements highlight a perception gap between the ECB and investors. While some investors expect interest rate cuts as early as April or even March, indications from President Christine Lagarde last week were to the contrary. Stournaras emphasized the need to avoid risks, stating, “We cannot take risks. We must see inflation steadily below 3% by mid-year before cutting rates.”

Positions of ECB Members: Kazimir and Villeroy

Peter Kazimir, Governor of the National Bank of Slovakia and a member of the ECB’s Executive Board, warned that premature easing would be a greater mistake than prolonged restrictive policies. He commented that the observed decline in inflation, including November, is not enough to declare victory, stating, “We are not out of danger yet.” Kazimir underscored the importance of prudence, stating, “Now is not the time to ease our vigilance.”

Villeroy de Galhau: Interest Rate Cut Likely in 2024

Francois Villeroy de Galhau, Governor of the Bank of France and a member of the ECB’s board, reiterated that there might be an interest rate cut in 2024, despite Lagarde’s current exclusion of such a possibility. Villeroy emphasized the importance of being proportionate in setting interest rates, aiming for stability and a probable cut in 2024. He also confirmed that the next move for the ECB would be an interest rate cut in 2024, based on data and independent of moves by the U.S. Federal Reserve.

Villeroy: 2% Inflation by 2025

Villeroy reiterated the ECB’s commitment to bring inflation to 2% by 2025, stating that this is not just a forecast but a concrete commitment. He made it clear: “We will bring inflation to 2% by 2025 at the latest.” The central banker also noted that, despite interest rates slowing down the economy, there is a kind of “soft landing.”

Challenges and Market Optimism

However, Gediminas Simkus, a Lithuanian member of the ECB’s Executive Board, emphasized that bets on rate cuts might be overly optimistic. He warned that despite the positive surprise in November’s consumer prices, medium-term prospects have not changed significantly. Simkus concluded that market expectations might be too optimistic.

In summary, the ECB is committed to keeping inflation below 3%, but divergences among members indicate a challenge in determining the right time for rate cuts, with contrasting opinions on 2024. Prudence remains the watchword, while investors are cautioned not to be overly optimistic about rate cut prospects. The ECB is closely monitoring economic indicators, focusing on achieving the 2% inflation target by 2025.


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