ECB stresses flexibility in rate cuts amid inflation concerns

European Central Bank (ECB) officials emphasised the need for flexibility in determining the pace of interest-rate reductions, as inflation remains a concern and risks to the eurozone economy are mounting.

A summary of their last policy meeting published on Thursday indicated a preference to maintain “full optionality” in response to incoming data.

Market expectations are high for a third rate cut this year, following recent data showing inflation retreating below the ECB’s 2 per cent target and indications of economic struggles within the eurozone.

Bank of France chief Francois Villeroy de Galhau noted that a cut is “very probable” and hinted that it may not be the last. Latvian central bank governor Martins Kazaks added that borrowing rates could be lowered to neutral levels by 2025 if inflation consistently aligns with targets.

The ECB’s cautious stance is reflected in Bloomberg Economics’ ECBSpeak Index, which is signalling increased dovishness among policymakers as they navigate the evolving economic landscape.

Attribution: Bloomberg

Subediting: Y.Yasser