Financial policy: ECB chief economist Lane for further interest rate cuts

The chief economist of the European Central Bank (ECB), Philip Lane, has spoken out in favor of further interest rate cuts to support the economy. “We don’t commit to a precise pace of reduction in advance, but we will have to reduce our interest rates gradually,” Lane said in an interview with the French financial newspaper Les Echos published on Monday. According to the chief economist, monetary policy should not remain restrictive for too long. “Otherwise the economy will not grow sufficiently,” Lane said.

The chief economist also assumes that inflation in the euro zone will continue to move towards the target set by the ECB. Accordingly, “a large part of the final stage” in bringing inflation back to the medium-term inflation target of two percent will be achieved next year.

Monetary policy is expected to be eased again at the ECB’s next interest rate meeting in mid-December. The central bank last continued its interest rate reduction course in October and reduced the key interest rate by 0.25 percentage points. The relevant deposit rate is currently 3.25 percent. The latest economic data from the Eurozone was surprisingly weak.

With a view to potentially greater protectionism in the US and negative impacts on the economy in the common currency area under incoming President Donald Trump, Lane said the extent of the problem will depend on how widespread protectionism is and how quickly it is implemented. There is a wide range of scenarios. “If tariffs are increased quickly and across the board, European companies will have little time to prepare and the risk of major disruption will be very high,” Lane warned.