JACKSON HOLE, Wyoming (Reuters) -The European Central Bank is making “good progress” in cutting inflation back to its 2% target but success is not yet assured, so restrictive monetary policy is still needed, ECB chief economist Philip Lane said on Saturday.
The ECB cut interest rates for the first time in June after a record string of hikes, and policymakers are widely expected to cut again on Sept. 12, taking the deposit rate to 3.5%, a level that remains high enough to put a brake on growth.
“My interim assessment of the effectiveness of ECB monetary policy … is that there has been good progress in delivering the overriding goal,” Lane told the U.S. Federal Reserve’s annual economic symposium in Jackson Hole.
But Lane also cautioned against premature celebration since projections put price growth back at 2% only at the end of 2025.
“The return to target is not yet secure,” said Lane, the key architect of the ECB’s policy responses. “The monetary stance will have to remain in restrictive territory for as long as needed to shepherd the disinflation process toward a timely return to the target.”
Markets expect the ECB to cut rates at least in September and December, and some investors are also betting on a move in October on the premise that the growth outlook is deteriorating quickly and the bank will be keen to support the labour market.
Without commenting on policy in the near term, Lane also warned against keeping policy excessively tight for too long, as that could depress growth and weaken the labour market.
“A rate path that is too high for too long would deliver chronically below-target inflation over the medium term and would be inefficient in terms of minimising the side effects on output and employment,” Lane said.
(Reporting by Balazs Koranyi; Editing by Franklin Paul and Mark Porter)
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