An interest-rate cut in September would require an improvement in the European Central Bank’s (ECB) inflation outlook, according to governing council member Boris Vujcic.
While action in July isn’t fully excluded, more data and a fresh set of forecasts will be available two months later, Mr Vujcic said. Any indication of a delay in reaching the ECB’s target would lower the chances of another reduction in borrowing costs at that time.
“In order to do more, we need to see more,” Mr Vujcic said in Dubrovnik. “Any prolongation of the inflation conversion toward the medium-term target weakens the case for an interest-rate cut, and vice versa.”
Commenting on Monday also, however, the ECB’s chief economist Philip Lane said he was confident that inflation would fall back to its 2 per cent target next year despite some “noisy” inflation along the way.
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“There’s a lot, a fair amount of confidence about the destination in the second half of next year,” Mr Lane said. “So we do have to interpret the incoming data carefully, but to differentiate the noise and the signal.”
The ECB lowered rates by a quarter-point earlier in June – nine months after the last hike. The decision came alongside projections showing slightly faster inflation this year and next and a somewhat longer path toward 2 per cent.
“We’ll watch the incoming data until September, until then we’ll have three more inflation readings, economic activity, labour market and financial-market data, and the new projection,” Mr Vujcic said.
“July is always an option, but much more data will be available in September. Everything is open at that meeting – a pause or a cut. I don’t want to show any signals of what we want to do before we see more data.”
[ ECB’s Philip Lane signals need for caution on further rate cutsOpens in new window ]
Mr Vujcic’s Latvian colleague Martins Kazakhs struck a similar tone. Policymakers mustn’t allow inflation to remain above 2 per cent into 2026, he said. The ECB currently expects to reach that milestone in the fourth quarter of next year.
Other officials have also urged prudence. Portugal’s Mario Centeno said inflation is set to remain at a plateau until August and argued decisions should be based on data.
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His Slovenian counterpart, Bostjan Vasle, said rates won’t be lowered at the same rapid pace they were lifted.
Mr Vujcic said that while the ECB’s baseline shows inflation is heading toward the target, officials “need to keep a special eye on services”.
They’re less tradable and more wage sensitive, he said, so inflation in that part of the economy is “probably more difficult to bring down”.
“Demand is still very strong in services and there’s the question of whether we’re witnessing a more permanent change in consumer preferences towards services from goods,” he said. “I don’t have an answer now but we’ll find out in due time.”
Risks to the inflation outlook are “probably more balanced than they used to be,” he added.
“A much faster decline in inflation isn’t very likely because it could primarily happen via goods. Services momentum is an upside risk, although we expect it to gradually decline over the remainder of the year.” – Bloomberg/Reuters
