© Reuters. FILE PHOTO: Bank of Spain Governor Pablo Hernandez de Cos takes part in a panel on the third day of the annual meeting of the International Monetary Fund and the World Bank, following last month’s deadly earthquake, in Marrakech, Morocco, October 11, 2023
MADRID (Reuters) – European Central Bank policymaker Pablo Hernandez de Cos said on Monday it was “premature” to talk about the possibility of interest rate cuts or make any forward-looking predictions about monetary policy.
The ECB ended an unprecedented streak of 10 consecutive interest rate hikes, opting to keep the rate steady at its last meeting in October.
It had lifted rates by a combined 4.5 percentage points since July 2022, leaving its deposit rate at a record high of 4%, to combat runaway price growth.
De Cos said the ECB’s assessment was that this level maintained for long enough could be sufficient to reach the bank’s inflation target of 2% in the medium term.
“It is absolutely premature to start talking about interest rate cuts,” De Cos told a financial event.
As markets bring forward rate cut bets, key conservative members of the ECB’s governing council – such as Bundesbank President Joachim Nagel – argued on Friday that the bank should avoid cutting rates too early as inflation remained high and the impact on growth was still relatively benign.
Investors are now pricing in 100 basis points of rate cuts for next year with the first one coming as soon as April, a big shift from the late October cut that was first projected in July.
De Cos said ECB policymakers did not consider it “the most appropriate thing to do given the current high uncertainty” to issue elements of explicit forward guidance.
“I do not envisage it in the short or medium term,” he said.