(Reuters) – The European Central Bank cut interest rates for a third time this year last week and investors expect further reductions ahead as euro zone inflation stabilises at the ECB’s 2% target and the economy stagnates.
While ECB policymakers generally agree on the direction of travel for rates, they differ as to the pace of reductions, the destination and how to communicate all that to investors.
Here’s a summary of their comments at the International Monetary Fund and World Bank’s annual meetings in Washington.
ECB PRESIDENT CHRISTINE LAGARDE (OCT 23)
“We need to be cautious because data will come up and will indicate to us what is the state of the economy, what is the state of inflation, of underlying inflation. And there will be a judgmental aspect to our decisions, but we will indeed have to be cautious in doing so.”
ECB CHIEF ECONOMIST PHILIP LANE (OCT 23)
“Some of the recent data raised some questions about (the recovery). But we still find this narrative of a good recovery in the economy as still very close to the baseline.”
BUNDESBANK’S PRESIDENT JOACHIM NAGEL (OCT 24)
“We shouldn’t be too hasty, we should be cautious (and) look at what data is coming in.” (Bloomberg TV)
FRANCE’S CENTRAL BANK GOVERNOR FRANCOIS VILLEROY DE GALHAU (OCT 22)
“We are not behind the curve today but agility should prevent us from running such a risk.”
“The risk of reducing too late our restrictive stance could indeed become more significant relative to the one of acting too quickly.”
BANK OF ITALY’S GOVERNOR FABIO PANETTA (OCT 23)
“We should continue (cutting rates), the direction of travel is in my view clear.”
“First, we’re still far away from the neutral rate. Second I wouldn’t take for granted, given the pace of the disinflation and the weakness of the real economy, that we have to stop at the neutral rate and we cannot exclude that we will go below neutral.”
“We should return to a normal type of communication, that means concentrating on our reaction function … and provide guidance in line with our medium term orientation.”
SLOVENIA’S CENTRAL BANK GOVERNOR BOSTJAN VASLE (OCT 24)
“We should keep going to neutral in measured steps.”
“There is no urgency in discussing undershooting the target or going below the neutral rate. These are not current issues.”
“By lowering interest rates further, we’ll be at the upper limit of the neutral rate estimates. Once we get there, it may be appropriate to align our language on the need to keep rates restrictive.”
PORTUGAL’S CENTRAL BANK GOVERNOR MARIO CENTENO (OCT 23)
“We need to look at the incoming data, the trend in the data that we have been observing, and certainly (a cut by) 50 basis points can be on the table because we continue to be data dependent and the data we are getting points in that direction.” (CNBC)
DUTCH CENTRAL BANK GOVERNOR KLAAS KNOT (OCT 23)
“I think we are pretty confident about the return of inflation to our 2% target somewhere in the course of next year.”
“I would also say that I see the risks surrounding that baseline as reasonably contained.”
“So, if that scenario indeed plays out and if the December projections continue to also confirm that scenario then it will allow us to gradually take our foot off the brake and continue to cut rates until we will, let’s say, have reached neutral territory, where we neither simulate nor slow down the economy anymore.” (CNBC)