Centeno insists the ECB must release more money into eurozone economy
The ECB needs to drop the brakes and hit the gas again. Mario Centeno, a Governing Council member at the European Central Bank, told La Stampa Sunday that the eurozone economy is still too weak to sustain current interest rates and called for “further stimulus.”
Centeno said, “The level of rates must be compatible with an economy that generates stable inflation at 2%,” but in his view, that economy “does not yet exist in the euro area.”
Centeno pointed to both supply and demand as being too fragile to bring inflation back to the ECB’s target without more help
“Today GDP is below potential, which indicates that the economy is not in equilibrium,” he said, adding that if the neutral rate stands at 2% but output is still under, then interest rates should fall below that level to close the gap.
Despite eight rate cuts over the past year, Centeno is clearly not convinced the job is done.
Centeno’s term ends, but message targets July ECB meeting
Centeno’s comments come just weeks before the next ECB policy decision on July 24, where a pause is widely expected. But by that date, he may no longer even be in the room. His term as head of Portugal’s central bank ends earlier in July, and the government hasn’t confirmed whether he’ll be reappointed.
He took over in 2020, after serving as finance minister under a Socialist-led government that was later voted out. In Portugal, central bank governors are named by the government and serve five-year terms.
The ECB’s easing campaign started last June, when euro-area inflation had just come off its 10% high from 2022, driven by energy shocks linked to Russia’s war in Ukraine.
Now, with inflation closer to the 2% target, officials are signaling they’ll hold off on more cuts, at least for now, to see how US trade tariffs and energy prices play out.