ECB Warns of Inflation Risks Below 2% Target

The European Central Bank (ECB) Governing Council member has expressed concern over the potential risks of inflation falling below its target, which is currently set at 2%. The ECB has been closely monitoring key economic indicators, including inflation and GDP, to assess the need for further monetary policy adjustments. The ECB's recent comments highlight the challenges it faces in maintaining price stability amidst a sluggish economic recovery.

If the economy remains stagnant and inflation stays close to 1% for the next few quarters, the ECB will need to take action. The ECB Governing Council member has stated that the current risk is already leaning towards the downside, as indicated by the ECB's June forecast. The ECB has been implementing various measures to control inflation, but the effectiveness of these interventions remains to be seen.

The ECB Governing Council member has also expressed doubts about the implementation of public investment and the timely completion of the Next Generation EU spending plan. When asked if a further 25 basis point rate cut could align the economy with the 2% inflation target, the ECB Governing Council member responded that if the economy does not recover, even a 2% rate would still be restrictive.

The ECB Governing Council member has also stated that the effectiveness of a rate cut to 1.75% depends on the economy's ability to recover while maintaining a 2% inflation rate. The ECB Governing Council member is uncertain about the effectiveness of a 25 basis point rate cut, but further rate cuts and their timing are difficult to predict. This depends on the development of investment, the labor market, and the final price trend.

The ECB Governing Council member has stated that both a rate cut and a pause in action are options to be considered at the July meeting. The ECB is still waiting for the second quarter GDP data to ensure economic stability in the third and fourth quarters. The ECB Governing Council member has also pointed out that without the expected impact of the Emissions Trading System (ETS), the inflation rate would remain below 2% until 2027.