Central Bank governor Gabriel Makhlouf
The European Central Bank should reserve big interest-rate cuts for exceptional circumstances, according to Gabriel Makhlouf, the governor of the Central Bank of Ireland, who prefers a “cautious” approach to ensure that inflation’s retreat to 2pc stays on track.
“The data has to be very powerful for me to feel that I need a leap,” he said in an interview on the sidelines of the International Monetary Fund’s annual meetings in Washington.
“Historically you leap if you’ve got some big catastrophe that’s happened, or because the data is telling you you’ve got to get on top of something very quickly.”
The comments add to the debate on whether borrowing costs could be lowered by half a percentage point when officials next meet in December – double the size of a standard move. Some have argued that this option should be considered as the eurozone fails to pick up momentum, and investors see a roughly 50pc chance it will happen.
Mr Makhlouf agreed that it’s no longer necessary for the ECB to hold back the economy with high rates, but added that policymakers should remain “prudent”.
“The need to stay very restrictive has become increasingly unnecessary,” he said. “Still, there are areas that we still worry about. I worry about services inflation a bit more than some others.”
Price growth in that part of the economy only slowed marginally last month, to 3.9pc. That’s a contrast to the headline number, which fell below the 2pc goal for the first time since 2021, leading to optimism price stability can be achieved sooner than previously anticipated.
France and Germany are at the core of the euro area’s weakness. While business activity in the the bloc’s two biggest economies kept contracting this month, growth picked up elsewhere in the region, surveys by S&P Global showed.
To overcome long-standing problems for economic expansion, Mr Makhlouf warned not to expect too much of central banks. “If I have a particular concern, it’s that I don’t see a lot of evidence of those challenges being addressed in a way that I would feel is needed, particularly in some of the biggest economies,” he said. “Monetary policy is very powerful. It can do a lot, but it can’t do everything.”
Another source of uncertainty is the US presidential election on November 5, with Donald Trump threatening a drastic expansion of tariffs should he win. But Mr Makhlouf downplayed the potential impact on the global economy. “There’s also recognition that actually the US election may not change much in terms of international developments.”