ECB is not required to dampen the still weak economy.

ECB Board Member Advocates for Dovish Approach to Monetary Policy Amid Slow Inflation and Weak Demand

On Monday, European Central Bank (ECB) board member Piero Cipollone stated that the euro zone’s economy does not need to be weakened further in order to control inflation. Instead, he emphasized that demand is still weak and suggested a dovish approach to monetary policy. This view aligns with the position of his predecessor Fabio Panetta.

As a result of slowing inflation and a stagnant economy, the ECB is now considering whether to cut borrowing costs. Despite this, other policymakers at the ECB have indicated that the moment to cut rates is fast approaching. However, before borrowing costs can be cut, more evidence is needed – particularly concerning wage growth – according to the prevailing view among the 26 policymakers for the euro area.

Chances of a rate cut are uncertain. Initially, investors were betting on the ECB to start cutting rates in March, but now see a 50% chance of the first rate cut in April, followed by further reductions. These reductions could bring the rate on bank deposits down to 2.75% – 3.00% by the end of the year from its current level of 4.0%.

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