FRANKFURT: The European Central Bank (ECB) must carefully calibrate the pace at which it cuts interest rates to balance risks that could leave inflation too high or too low, executive board member Frank Elderson tells Dutch newspaper Het Financieele Dagblad.
Setting policy at the current juncture is ultimately about how fast and how much to lower borrowing costs, Elderson said, according to an interview transcript published on the ECB’s website. He pointed to financial-market bets for further cuts and argued that he doesn’t believe either that the ECB is done. Yet, he urged caution in charting the path ahead.
“If we lower the interest rate too quickly, dialing down services inflation sufficiently could become complicated,” he was quoted as saying. “On the other hand, if we keep interest rates too high for too long then we risk undershooting our target. In the past decade we’ve seen where that lands us and how difficult it is to correct inflation when it’s too low.”
The ECB reduced rates by 100 basis points last year and is widely expected to deliver a similar scale of cuts in 2025, starting with a quarter-point step later this month. — Bloomberg
