ECB Chief Economist Philip Lane emphasized the need for a balanced approach in the easing cycle, advocating a measured pace to avoid either stifling economic growth or fueling excessive inflation.
He highlighted that a “middle path is appropriate,” ensuring that policymakers do not lean too heavily on either upside or downside risks.
Lane reiterated the importance of maintaining flexibility, stressing that the ECB must “maintain agility” in its decision-making, relying on incoming data and a meeting-by-meeting assessment rather than committing to a predefined rate path.
The economist also pointed out that determining the appropriate level of monetary restrictiveness is complex and involves multiple factors beyond just policy rates.
He outlined nine key elements, including the transition from cheap debt refinancing to higher rates, the forward-looking impact of expected rate cuts, global term premium pressures, evolving bank lending conditions, and the overall response of consumption and investment to shifting monetary policy.
This multi-faceted assessment indicated that ECB rate decisions will be guided by a broader set of financial and economic indicators.
It “cannot be summarised by a single indicator such as comparing the prevailing policy rate to a highly-uncertain estimate of the so-called neutral rate,” Lane emphasized.
Full speech of ECB’s Lane here.