European Central Bank Governing Council member Christodoulos Patsalides noted on Thursday that he prefers small and gradual interest rate cuts. He emphasised the need for vigilance and caution, given the elevated level of uncertainty in both directions. The official also highlighted the importance of avoiding market surprises or sending the wrong signals.
Patsalides stated that he does not see persistent economic stagnation or inflation undershooting and that the ECB has no reason to lower interest rates to a level that stimulates the economy. He explained that going below the neutral rate would imply either an ongoing recession or projections of a severe recession, but currently, he does not foresee a situation in which rates would fall below the neutral rate.
Patsalides remarked that it is difficult to pursue policies based on a preconceived neutral rate and suggested that the ECB will recognize the neutral rate when it is reached. On the euro's exchange rate, he mentioned that he does not have a specific view on its appropriate level but noted that the current rate does not seem to be causing any inflationary issues.