ECB’s Lane praises gradualism as end of tight policy nears

1:22 pm Monday, November 25th, 2024

PARIS/LONDON (Reuters) -The European Central Bank should not keep its monetary policy tight for too long or inflation could fall below target, ECB chief economist Philip Lane, said on Monday, while praising the bank’s gradual approach to cutting rates.

Lane’s comments showed the ECB was becoming more confident it had tamed the most vicious bout of high inflation in at least a generation but it may not be quite ready to step up the pace of policy easing.

“Monetary policy should not remain restrictive for too long,” French newspaper Les Echos quoted Lane as saying on Monday. “Otherwise, the economy will not grow sufficiently and inflation will, I believe, fall below the target.”

The ECB has cut rates three times already this year but investors now see a 50% chance it will cut by 50 basis points on Dec. 12 instead of the usual 25 given weak growth and rising recession risks.

Lane appeared to pour cold water on such speculation later on Monday, saying the central bank for the euro zone had been well served by a “cautious approach”.

“This cautious approach, rooted in the principle of gradualism, emphasises moving incrementally when faced with uncertainty about the impact of our actions on the economy,” Lane told a Bank of England conference in London.

In the Les Echos interview Lane also warned that inflation was not yet back to where the ECB wanted it because services price growth is too high and most of the recent fall was due to moderating energy costs.

The ECB thus needed to see some rebalancing in the composition of price growth with a decline in services inflation, so it could still reach its 2% target, even if energy, food and goods prices come under upward pressure.

“There is still some distance to go in terms of adjustment for inflation to return to the desired level in a more sustainable way,” Lane said.

November data due this week is expected to show euro zone inflation accelerating to 2.4% from 2.0%. It could then rise further at the end of the year before easing back to 2% by mid-2025, economists say.

(Reporting by Tassilo Hummel and David Milliken; writing by Balazs Koranyi and Francesco Canepa; Editing by Makini Brice and Susan Fenton)