ECB’s Simkus Wants Rate Cuts But Can’t Justify Half-Point Move

Gediminas Šimkus, a member of the European Central Bank's (ECB) Governing Council and governor of the Bank of Lithuania, has expressed his support for further interest rate cuts. However, he has stopped short of endorsing a half-point reduction, a move that some market participants have been anticipating. In a recent interview, Šimkus stated, "I don't think these super cuts, you know, are somehow grounded unless we really see something unexpected and bad in the data."

Šimkus' cautious stance on rate cuts is influenced by his assessment of the economic outlook. He acknowledges the need for monetary policy easing but is mindful of the risks associated with aggressive rate cuts. In his view, the ECB should proceed with caution, as the economic data may not warrant such a significant move.


Balancing the risks of inflation undershooting and overshooting the ECB's target is a critical aspect of Šimkus' decision-making process. He is aware of the downside risks to inflation and the potential for the economy to stagnate. However, he is also conscious of the risks associated with excessive rate cuts, which could lead to a resurgence in inflation. Šimkus believes that the ECB should maintain a data-dependent and meeting-by-meeting approach to determining the appropriate level and duration of rate cuts.

Šimkus' perception of market expectations and investor sentiment also plays a role in his stance on ECB rate cuts. He is cognizant of the market's anticipation of back-to-back ECB rate cuts through the middle of next year. However, he is uncomfortable with calls for big interest rate cuts, as he believes that such moves should be grounded in solid data.


The ECB's communication strategy and transparency are also factors that Šimkus considers when evaluating rate cuts. He believes that the ECB should return to a normal type of communication, concentrating on its reaction function and providing guidance in line with its medium-term orientation. Šimkus is of the view that the ECB should align its language on the need to keep rates restrictive once it reaches the upper limit of neutral rate estimates.

In conclusion, Gediminas Šimkus supports further interest rate cuts by the ECB but is cautious about endorsing a half-point reduction. His stance is influenced by his assessment of the economic outlook, the need to balance inflation risks, market expectations, and the ECB's communication strategy. As the ECB continues to navigate the complex economic landscape, Šimkus' views will play a crucial role in shaping the central bank's monetary policy decisions.