The Governor of the Central Bank has said it would be going a bit far to say an ECB interest rate cut next month is in the bag.
However, Gabriel Makhlouf also said the evidence would need to be “pretty overwhelming” to consider a 50-basis-point cut at the meeting on 12 December.
The Central Bank chief also claimed it would be premature to start making decisions on what a new US administration might do when asked if Donald Trump’s election changes his thinking on inflation.
“I do think it would be premature to come to conclusions as to exactly what it is that the new US administration is going to do, and to start making decisions based on that assumption,” Mr Makhlouf said.
Speaking at the bank’s Financial System Conference in Dublin, Mr Makhlouf said he did not feel the need to rush to finish the bank’s work on taming inflation and that policymakers should continue to be prudent and cautious.
“I don’t think the job is done. I think the job is well on the way to being done but I don’t also feel at the moment the need to rush in any way to get the job done,” he said when asked if he was confident the ECB could move its policy out of restrictive territory.
“My own personal view is that prudence and caution have got a bit of premium going to them and we should continue in that manner.”
Asked whether he was optimistic that eurozone inflation would hit the ECB’s target of 2% in the first quarter of next year, Mr Makhlouf said he is “really completely chilled” as to which quarter as to which quarter it is, adding that “all of us should just chill out a bit, as to whether it is going to be in Q1, Q2 or even Q3.”
In his speech, Mr Makhlouf also said public innovation in payment systems must keep pace with private innovation.
“Otherwise challenges may arise in maintaining financial stability and monetary sovereignty in a digitally disruptive era,” he warned.
He said the introduction of a digital euro is a “logical next step” in the evolution of the currency and one which would respond to the shift in customer preferences for digital payments, in order to “future-proof” money.
“A digital euro would go hand in hand with banknotes, providing an all-in-one digital payment option across the euro area, free for basic use. It will blend the simplicity of cash with digital convenience while maintaining the highest levels of privacy,” he said.
Speaking about the tokenisation of financial assets, Mr Makhlouf said it has vast potential to lead to advancements in both real-time and dynamic transaction processing.
He added that this is not the same as “speculative crypto assets, about which I continue to have concerns, not least for consumers.”
While on artificial intelligence, Mr Makhlouf said its impact on the financial system could transform the risk landscape.
It could do this, he said, by transforming existing challenges like interpretability, fairness, and ethical data use and accentuating other ones, such as cyber risk and governance.
Article Source – Interest rate cut next month not yet certain – Makhlouf – RTE
