ECB/Lane: Monetary Policy Should Not Remain Restrictive for Too Long

Forex - European Central Bank (ECB) chief economist Philip Lane stated that there is still a long way to go for Eurozone inflation to sustainably return to 2%, but emphasized that the ECB's policy should not remain restrictive for too long; otherwise, the price increases could fall below the target.

Speaking to Les Echos, Lane said, “Monetary policy should not remain restrictive for too long. Otherwise, the economy will not grow sufficiently, and I believe that inflation will fall below the target.”

The ECB has cut interest rates three times this year, but investors are seeing a 50% chance of a 25 instead of a 50 basis point cut on December 12, due to weak growth and rising recession risks.

However, Lane cautioned that inflation has not yet reached the desired level by the ECB due to the very high increase in service prices and that a large part of the recent decline is related to moderate energy costs, softening expectations.

Therefore, for the ECB to reach its 2% target, despite upward pressure on energy, food, and commodity prices, it requires a rebalancing in the composition of price growth along with a decline in service inflation. Lane stated, “There is still a distance to be covered in terms of adjustments for inflation to return to the desired level in a more sustainable manner.”