ECB Interest Rate Outlook

FRANKFURT (Reuters) – The European Central Bank (ECB) can still cut interest rates due to slowing inflation, according to ECB board member Piero Cipollone in an interview with Le Monde.

The ECB reduced rates in June from a record high and is anticipated to cut again on September 12. However, the growth forecast has worsened over the summer, leading policymakers to consider whether they have been too tight in their approach.

Cipollone did not explicitly call for a rate cut in September but noted that inflation is progressing as expected, which includes policy easing for both September and December.

“The data so far confirms our direction of travel and I hope that they will allow us to continue to be less restrictive,” Cipollone stated.

He acknowledged the risk of becoming overly restrictive and emphasized the importance of aligning inflation with the target without hampering the economy unnecessarily. Market expectations reflect the likelihood of at least two more rate cuts this year, influenced by weak growth and anticipated moves from the U.S. Federal Reserve.

Cipollone pointed to concerning data from consumer confidence and manufacturing activity as indicators that risk the euro area’s growth outlook. He highlighted that weak investment suggests a lack of confidence in a robust recovery, potentially undermining the bloc’s future growth capabilities and technology adoption.