On October 23, 2024, discussions among European Central Bank (ECB) policymakers have indicated a potential shift towards lowering interest rates to stimulate the economy. This comes after a series of rate cuts earlier this year aimed at achieving a neutral economic setting.
Sources familiar with the matter reported that there is a growing concern among some policymakers that the ECB's current approach may not be sufficient to combat deteriorating economic conditions and below-target inflation levels. The discussions suggest that deeper rate cuts may be necessary to prevent inflation from falling too low.
Gediminas Simkus, head of the Lithuanian central bank and an ECB governing council member, highlighted the risk of entrenched disinflation, suggesting that rates could fall below the so-called 'natural' level. The debate surrounding the neutral rate remains complex, with estimates varying widely among ECB officials.
While some policymakers are advocating for a reassessment of the ECB's current guidance on interest rates, others, like Portugal's central bank chief Mario Centeno, have expressed concerns about the risks of inflation undershooting targets. Centeno emphasized that the current economic stagnation could lead to a further decline in domestic inflation and a weakening labor market.
This ongoing discourse reflects the ECB's struggle to balance its monetary policy amidst uncertain economic forecasts. The decision on any potential rate cuts is expected to take time, with no immediate consensus reached.