Governor of the Central Bank, Gabriel Makhlouf, has expressed his agreement for a further reduction in the interest rates by the European Central Bank (ECB) this year, stating that he requires additional time to ensure inflation is progressing towards the set goal of 2 per cent. He voiced his opinion during the European Central Bank’s Forum on Central Banking, held in Sintra, Portugal. Although Makhlouf wasn’t against the possibility of two reductions, he advised caution regarding this move, considering it may be excessive.
Market players are anticipating at least one, possibly two, more ECB interest rate cuts by year-end, following the significant inflation decrease from 10 per cent late last year to a mere 2.5 per cent last month. However, in an interview with Reuters, Makhlouf, who holds a position on the ECB’s governing council, aired a more measured perspective, whilst acknowledging an inevitable decrease in rates.
The ECB took strides in reversing its severe sequence of interest rate escalations last month. However, ECB president Christine Lagarde emphasised the slow and considerate approach of the eurozone’s central bank towards further minimising borrowing costs.
Recent statistics unveil a slowdown in inflation amongst the euro-sharing nations, with a slight reduction to 2.5 per cent in June from 2.6 per cent in the previous month. Makhlouf expressed satisfaction with these figures, as they validated the bank’s strategic direction, yet underlined that inflation in the service sector, following a concurrent 4.1 per cent surge, remained the primary focal point.
The climbing wages, which have started to keep pace with inflation after lagging in 2021-2022, have been marked by the ECB as principal influencers of the service sector’s pricing. Makhlouf affirmed that he and his colleagues should allow for further data collection before acting. He hypothesised a decrease in interest rates, given the continued successful attainment of their 2 per cent target in a sustainable manner but mentioned the velocity and ultimate destination of these rates would be dependent on various factors.