Our next move will be a rate cut, Governor of Bank of Spain says during Cyprus visit

European citizens should know that the European Central Bank’s next move will be a rate cut, Governor of the Bank of Spain and ECB Governing Council member Pablo Hernandez de Cos has said, noting that is not wise to be precise on the timing of the cut, due to the need to be data dependent.

His comments came after a 6 February meeting with key stakeholders of the Cypriot economy along with his colleague, Governor of the Central Bank of Cyprus Constantinos Herodotou who also underlined the need for a data-driven decision as to when the ECB will adjust its policy rates downwards.

In statements after the meeting, De Cos said “we should emphasize that we are now confident on the fact that inflation is moving back to target,” adding that December ECB projections were showing that inflation will be moving to 2% in the medium-term.

The Spanish Central Banker added the ECB does not want to be explicit on the timing of the rate cut as it will receive additional information on the determinants of inflation.

“It is very important for European citizens to know that we are confident that the next move will be a cut but I think it's also wise not to be very precise on signaling on when because this will depend on data,” he said.

On his part, Herodotou said that the key is to be data dependent.

“And if you are truly data dependent, you cannot tell from now or announce from now when the interest rate cuts will start, we need to look at the data because we should not be too late to start adjusting the interest rate downwards, but we should not be too early either,” he stressed, adding that new ECB staff projections will be published in March.

Replying to a question, De Cos said that we are of the view that there is still part of the transmission pending, noting that rate hikes have tightened financing conditions whereas there is lag concerning the impact of tighter financing conditions on the real economy.

In his initial remarks, De Cos said Herodotou’s “acute understanding of financial markets and of the euro area economy have enriched the collective thinking of the Governing Council, thus helping us navigate very difficult times.”

Keravnos' comments

The Euro area monetary policy should respond in due time taking into account the course of inflation, Finance Minister Makis Keravnos told De Cos in his comments.

According to a press release issued by the Finance Ministry, the meeting covered the state of play and challenges facing the global economy, including the EU, the EU’s green transition and energy policies.

De Cos praised Cyprus' economic performance, highlighting the robustness of the Cypriot banking system, while he noted that inflation in the EU in general is on a downward trajectory but there are risks to the outlook.

On his part, Keravnos made a broader presentation of the Cypriot economy and the main reforms planned by the government. He also stressed that the Euro area monetary policy should respond in due time taking into account the developments in the field of inflation.

The Finance Minister also referred to the effort of the President of the Republic over the settlement of the Cyprus problem, stressing the need for more firm initiatives on behalf of the EU as a solution would yield a deciding impact on economic growth to the benefit of all Cypriots.

(Source: CNA)