On Wednesday, June 19th local time, Mario Senteno, a member of the European Central Bank's governing committee and Governor of Portugal, stated that as long as inflation continues to slow down, the European Central Bank can further lower interest rates, but interest rates will not return to ultra loose levels.
Senteno said on Wednesday, "The interest rate cycle will continue to evolve. If inflation is favorable to us, interest rates will decrease, and now inflation is playing such a role."
At this month's interest rate meeting, the European Central Bank announced a 25 basis point rate cut, with the three key interest rates, namely refinancing rate, marginal lending rate, and deposit mechanism rate, lowered to 4.25%, 4.50%, and 3.75%, respectively.
However, since then, European Central Bank officials have generally stated that there will be no rush to cut interest rates in the future, and the next monetary policy action will depend on economic data.
For future monetary policy, Senteno stated that the long lasting super loose policy before the start of the current rate hike cycle by the European Central Bank will not return.
Before the outbreak of the COVID-19, the euro area had been at an extremely low inflation level for a long time. From 2013 to 2019, the average inflation rate of the euro area was only 1%, only half of the ECB's target inflation level of 2%, which also made the central bank maintain a long-term negative interest rate policy.
However, after the outbreak of the COVID-19, inflation in the euro area began to soar in 2021. The following year, affected by the overall escalation of the Russia-Ukraine conflict, the inflation rate once reached a record 10.6%.
In order to curb high inflation, the European Central Bank ended an eight year period of negative interest rates in July 2022 and began the fastest rate hike cycle in history, raising interest rates 10 times in a row, totaling 450 basis points.
Senteno said, "Ideally, interest rates would not return to zero. If this happens, it would be a very bad signal. Ideally, interest rates would also be close to 2%."