ECB’s Lane emphasizes long road ahead before rate cuts

In an interview with Het Financieele Dagblad, ECB Chief Economist Philip Lane stressed the European Central Bank’s stance on the prevailing inflationary conditions. Highlighting the central bank’s efforts, Lane remarked, “Because inflation is too high, we’re trying to deliver interest rates that are significantly above the neutral range.” He affirmed the bank’s commitment to maintaining this position, stating, “We will keep interest rates high for as long as necessary.”

Lane also opened the door to potential policy adjustments, emphasizing that, “If we have inflation shocks that are sufficiently large or sufficiently persistent, we have to be open to doing more.”

He projected that inflation would return to ECB’s target of 2% by 2025. However, he also signaled that the journey to this target is not short-term. “Only when we are sufficiently confident of reaching that target, we can normalize policy,” he said, adding, “But this is quite some distance from where we are now.”

Delving into what he perceives as necessary to gain more clarity, Lane expressed a personal need for “more information about the wage settlements for 2024.” He highlighted that a considerable amount of time would elapse before gaining confidence in the inflation trajectory, noting, “we will have to wait until spring next year before many countries release that information.”

He said, “So it’s going to be some time before we can have a high degree of confidence that inflation is on its way back to 2%.”

Full interview of ECB Lane here.