ECB Member Calls for Further Rate Cuts as Eurozone Economy Remains Fragile

Mario Centeno, a member of the Governing Council at the European Central Bank (ECB), has called for further stimulus to support the eurozone economy, which he believes is still too weak to sustain current interest rates. In an interview, Centeno emphasized that the ECB needs to continue its easing measures to ensure stable inflation at the target rate of 2%. He pointed out that both supply and demand in the economy are too fragile to achieve this goal without additional support. Centeno noted that the current GDP is below its potential, indicating that the economy is not in equilibrium. He suggested that interest rates should fall below the neutral rate of 2% to close the gap between the current output and potential output.

Despite the eight rate cuts implemented over the past year, Centeno remains unconvinced that the ECB has done enough to stimulate the economy. His comments come just weeks before the next ECB policy decision on July 24, where a pause in rate cuts is widely expected. However, by that date, Centeno may no longer be a part of the decision-making process, as his term as head of Portugal’s central bank ends earlier in July, and his reappointment has not been confirmed. Centeno took over the role in 2020, after serving as finance minister under a Socialist-led government.

The ECB’s easing campaign began last June, in response to euro-area inflation peaking at 10% due to energy shocks linked to the conflict in Ukraine. With inflation now closer to the 2% target, officials are considering whether to pause further rate cuts to assess the impact of US trade tariffs and energy prices. Centeno’s call for action comes against this backdrop, urging the ECB to continue its accommodative stance to support the recovery of the eurozone economy.

While Centeno focuses on interest rates, Christine Lagarde, the president of the ECB, has shifted her attention to trade. During a surprise visit to Kyiv, Lagarde highlighted the importance of boosting regional trade to protect Europe from external economic shocks. She noted that most eurozone exports go to neighboring countries and that deeper economic ties could reduce exposure to global fragmentation. Lagarde’s visit underscored her support for Ukraine and the region’s efforts to rebuild and integrate more closely with Europe.

Another Governing Council member, Francois Villeroy de Galhau, head of the Bank of France, also weighed in on the debate, warning that the ECB must remain ready to act if needed. He emphasized the importance of staying agile and flexible in monetary policy, while also being predictable and understandable to the market. Villeroy highlighted potential risks, including rising energy prices and the euro’s strength against the dollar, which could have disinflationary effects and impact exports. He stressed the need for the ECB to remain alert and prepared to act in its upcoming meetings.