Thu Sep 19 07:10:00 UTC 2024: ## ECB May Need to Cut Rates Again in October: Member Signals Shift in Policy

**LISBON –** The European Central Bank (ECB) may need to cut interest rates sooner than anticipated, according to Mário Centeno, Bank of Portugal Governor and a member of the ECB’s Governing Council. Centeno’s comments suggest a potential shift in the Bank’s approach to monetary policy, deviating from President Christine Lagarde’s earlier indication that further action wouldn’t be taken until December.

Centeno emphasizes that the ECB needs to “minimize the risk of undershooting” growth and inflation targets, as recent data reveals weaker-than-expected economic performance in Europe. He points to slowing wage growth, a sharp decrease in investor morale, and a decline in investment, highlighting concerns about disinflation.

While the U.S. Federal Reserve’s recent interest rate cut may have provided some inspiration, Centeno argues that the economic data in Europe is already showing signs of weakness. The data released since the ECB’s last rate cut in September points towards a possible earlier easing of policy, he says.

Centeno also expresses concern about the strength of the European labor market, warning that firms tend to synchronize job cuts during downturns. He highlights the rising unemployment rate in Germany, which is already above the 2022 low, and suggests the key interest rate is still in restrictive territory.

While ECB chief economist Philip Lane acknowledged the need for “optionality” regarding an October rate cut, hawks on the Governing Council have stressed that such a move would require significant shifts in the economic outlook. Centeno, however, dismisses concerns about the short timeframe between the September and October meetings, stating that five weeks is ample time for the Governing Council to reassess the data and make informed decisions.

This latest development suggests that the ECB is grappling with a delicate balancing act between controlling inflation and supporting economic growth. While the Bank’s recent forecasts project inflation easing to below target in 2026, the ongoing weakness in the economy and investment may necessitate further action to stimulate growth.

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