Portuguese central bank governor Mario Centeno said Tuesday that euro zone inflation is moving in the right direction, although his peers on the European Central Bank’s Governing Council have taken a more hawkish tone in recent days.
“We are targeting inflation in the medium term, we are not targeting inflation in February, and the trajectory is very positive at the moment,” Centeno told CNBC at the World Economic Forum in Davos, Switzerland.
“I am not saying that exceeding the target is out of the question, but we do not need to do more than what is required to reduce the medium-term inflation rate to 2%. Since the end of 2022, all our forecasts until 2025 show a very good improvement.” – Stable inflation expectations in the medium term.”
“We are still data-driven, and that is how we frame our decisions… One of the greatest successes of the ECB recently is its ability to hold medium-term inflation expectations at 2%, and that is because we have credibility, we have credibility,” Centeno said. “Let it stay that way.”
He added that pressures on inflation have become localized, with most of the shocks that led to the sharp rise in inflation to 10.6% in October 2022 receding.
Services inflation is falling faster than it rose and is on a particularly positive path, Centeno said.
These statements come a day after the Governor of the Austrian Central Bank and member of the European Central Bank, Robert Holzmann, said that the data in recent weeks pointed to the “opposite trend,” which usually stimulates talk about lowering interest rates. He also said that it is possible that there will be no cuts this year, contrary to market expectations.
Holzman also pointed to new risks from volatility in the Middle East as potential inflationary risks.
Asked about the potential timing of interest rate cuts, Centeno said: “We have been surprised in the last three to four months by the tapering off with the inflation numbers.” He said this is positive even if it shows small errors in the forecast because it shows the impact of tight monetary policy.
“And once inflation starts to fall sustainably, with an economy…that is not growing, and where the challenges are huge, we need to be open to getting all the data and making a decision on that,” Centeno continued.
Centeno pointed out that the eurozone economy has been stagnant for five quarters and appears “shaky,” in contrast to what we saw in the United States during the same period, and “we need to pay attention to it.”
Bundesbank President Joachim Nagel told Bloomberg on Monday that inflation is too high at the moment to warrant discussion of interest rate cuts, but he said summer could be the right time.