ECB’s Centeno Signals Potential for Sub-Neutral Interest Rates to Combat Deflation Risk

The European Central Bank (ECB) Governing Council member Mario Centeno has raised concerns about the growing risk of deflationary pressures within the Eurozone. He suggested that the ECB may need to lower interest rates below the neutral level to ensure inflation reaches and remains at the 2% target.

Centeno stressed that a lack of investment could lead to inflation undershooting the target. He explicitly stated the need to continue lowering interest rates and expressed comfort with gradual 25 basis point reductions.

Furthermore, he highlighted the importance of European solidarity in addressing potential trade tariffs, anticipating future negotiations on the matter.