ECB official backs two rate cuts this year

In an interview with the Financial Times published on Wednesday, Yannis Stournaras, the European Central Bank’s policy minister, said he backed two rate cuts this year and expected further easing in 2025.

“Even if we cut rates by 25 basis points now and another in December, interest rates would return to 3%,” Mr Stournaras told the Financial Times, explaining that those rates were still in “very restrictive” territory.

The ECB has already cut rates from record highs twice this year, and with inflationary pressures easing faster than policymakers had expected, the market has fully priced in the October and December rate cuts and is expecting faster monetary easing.

Earlier this week, French central bank governor Francois Villeroy de Garou told an Italian newspaper that the ECB was likely to cut rates at its next meeting on October 17. This is because weak economic growth increases the risk that inflation will fall below the 2% target.

He said the ECB should return to a “neutral” interest rate sometime in 2025, which would neither slow nor stimulate growth.

“If inflation is sustainable at 2% next year and Europe’s growth outlook remains low, there is no reason for monetary policy to remain tight and interest rates above the neutral rate,” Mr Villeroy said.