After the third interest rate cut within the year, European Central Bank (ECB) officials have begun discussing the prospect of a more accommodative policy, with an aggressive 50 basis point rate cut being put on the table.
The ECB's "big hawk" seems to have also shifted his stance, stating that a 50 basis point rate cut in December is not ruled out. If inflation data supports it, he would like to see interest rates reach a neutral level more quickly.
On October 24, ECB Governing Council member Robert Holzmann, who was attending the IMF annual meeting, believed that at this year's last interest rate meeting, despite the further risk of inflation rising, the ECB might opt for another 25 basis point rate cut.
Holzmann is one of the most hawkish interest rate setters at the ECB, but his recent statement appears to be more "dovish."
The Austrian central bank governor pointed out that the possibility of a more significant rate cut, namely 50 basis points, or a pause in rate cuts, cannot be ruled out. Holzmann said:
I believe there is a possibility of a 25 basis point rate cut in December. Although a 50 basis point rate cut is unlikely, it cannot be completely ruled out.
We might also conclude that the precautionary rate cut in October has been sufficient, and we can take a pause in December.
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Currently, inflation in the eurozone is experiencing a cooling down, with the September inflation rate unexpectedly falling to 1.7%. However, in Holzmann's view, there is still a risk of inflation rising, with concerns that inflation might be stronger than expected.
He stated that if inflation data supports it, he would not mind reaching a neutral interest rate level more quickly.
A few days before his speech, ECB officials had already begun discussing whether to lower interest rates to a level that could stimulate economic activity.Officials believe that the European Central Bank (ECB) may be lagging in easing monetary policy and needs to implement more significant interest rate cuts.
The Governor of the Bank of Portugal, Mario Centeno, has also mentioned the possibility of a 50 basis point rate cut. He stated:
The ECB should consider a more substantial rate cut, and policy must reach a neutral level as soon as possible.
It is unclear whether the ECB will lower interest rates below the neutral level. The ECB may be behind the curve.
The pace of consecutive rate cuts has already begun. Although ECB officials have not yet reached a consensus on how many basis points to cut in December, they almost all agree on the need for further rate cuts.
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