ECB’s Muller urges caution on potential year-end rate cut

The European Central Bank (ECB) may potentially lower borrowing costs again before the year’s end, albeit cautiously, according to Madis Muller, a member of ECB’s Governing Council and Estonia’s central bank governor.

In an interview at the ECB’s annual forum in Sintra, Portugal, Muller suggested that if economic outcomes align with projections, further easing could be warranted this year.

Having recently reduced rates for the first time since a series of hikes, policymakers are deliberating amidst uncertainties in inflation and economic growth forecasts. Muller emphasised the need for patience, advocating for gradual adjustments due to lingering concerns over core inflation, service inflation, and robust wage growth.

Regarding inflation, Muller expects it to align with forecasts, aiming for a return to the 2 per cent target by late 2025. However, he warned of potential upward price pressures from a recovering economy. Despite acknowledging the risks of underestimating inflation persistence, Muller affirmed the ECB’s commitment to vigilance.

Attribution: Bloomberg.