European Central Bank policymaker Gabriel Makhlouf expressed his comfort with the idea of just one more interest rate cut for the rest of the year. Despite market expectations of potentially two more interest rate reductions by December, Makhlouf, who serves as Ireland’s central bank governor, struck a more cautious tone during an interview. While he acknowledged the possibility of rates falling eventually, he pointed out that two immediate cuts might be premature.
Current Situation and Data
Recent data showed a decline in inflation, dropping from 2.6% to 2.5% in June across the euro zone. Despite this, President Christine Lagarde emphasized the ECB’s lack of rush in further reducing borrowing costs. Makhlouf, on the other hand, expressed contentment with the data, noting that it aligns with the overall direction they intend to move towards. To him, services inflation remains a critical focus point, especially in light of a consecutive 4.1% increase.
Importance of Wages and Sustainable Target
The ECB has identified wages as a central factor driving prices in the services sector, with an emphasis on catching up with inflation after trailing behind in recent years. Makhlouf stressed the significance of allowing time to gather more data, indicating a preference for a gradual approach to interest rate adjustments. He expressed optimism about achieving the ECB’s 2% inflation target in a sustainable manner, suggesting that lower interest rates could come into play if success persists in meeting this goal.
While market expectations lean towards additional interest rate cuts by the ECB, Gabriel Makhlouf’s cautious approach reflects a more measured stance. With a focus on data, services inflation, and sustainable growth, the ECB’s outlook on interest rates appears to be guided by a patient and deliberate strategy towards achieving their inflation target.
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