Mario Centeno, the governor of Portugal’s central bank, stated on Tuesday that euro zone inflation was moving in the right direction. This comes in contrast to the more hawkish stance taken by his colleagues on the European Central Bank Governing Council in recent days.Thank you for reading this post, don't forget to subscribe!
“Our focus is on medium-term inflation, not on February inflation, and the current trajectory is very promising,” Centeno told CNBC at the World Economic Forum in Davos, Switzerland.
“I’m not suggesting that surpassing the target is a possibility, but we shouldn’t go beyond what is necessary to bring inflation down to 2% in the medium term. Since the end of 2022, all our projections for 2025 have indicated positive inflation trends over the medium term.”
“We base our decisions on data… One of the ECB’s major recent achievements has been stabilizing inflation expectations at 2% over the medium term. This is because we are reliable and we must continue to be so,” stated Centeno.
He mentioned that the inflation pressures have become domestic, with the majority of the shocks that led to a significant inflation spike to 10.6% in October 2022 having subsided.
According to Centeno, services inflation is decreasing at a faster rate than it is increasing, which is a positive trend.
These statements were made a day after Austrian central bank governor and ECB member Robert Holzmann remarked that recent data was indicating the “opposite direction” regarding potential interest rate cuts, sparking conversation. He also suggested that contrary to market expectations, there might be no cuts this year.
Holzman also highlighted new risks, such as potential inflation stemming from instability in the Middle East.
When asked about the potential timing of a rate cut, Centeno commented: “We have been taken aback by the decline in inflation figures over the past three to four months.” He stated that this is positive, even though it indicates minor inaccuracies in the forecast, as it reflects the impact of tight monetary policy.
Centeno added, “And once inflation begins to consistently decrease in an economy that is not growing, where the challenges are substantial, we need to gather all the data and make decisions based on that. We need to remain cautious.”
Centeno mentioned that the euro zone economy has been stagnant for five quarters and appears “unstable,” in contrast to the situation seen in the U.S. over the same period. He stated, “We need to address that.”
Joachim Nagel, the chief of the German central bank, told Bloomberg on Monday that inflation is currently so high that there is no need to discuss interest rate cuts, but suggested that the summer could be an opportune time.