The European Central Bank could gradually reduce interest rates if inflation falls as expected, two ECB policymakers said today.
The ECB cut rates in June for the first time in the current cycle but has made no explicit commitment about its next move, even if policymakers are clear that further cuts are in the pipeline and only the timing is up in the air.
Bank of Italy governor Fabio Panetta and his Finnish peer Olli Rehn confirmed this view, with only the slightest difference in tone between them.
"The current macroeconomic picture is consistent with a normalisation of the monetary stance," Panetta told a Bank of Finland conference.
"The ECB duly started this process a few weeks ago and, in the baseline scenario, it will pursue it gradually and smoothly."
Rehn said current market expectations - which are for one or, more likely, two rate cuts by the end of the year - were "reasonable" but only "on the condition that the disinflationary process will continue as projected".
While policymakers keep hinting that July is not the right time for the next move, given worrisome wage and price data in recent weeks, Panetta also advised colleagues against such commentary, since they had agreed to be data-dependent and decide on policy meeting-by-meeting.
He also sought to dampen worries about sticky inflation in services, arguing that services prices had simply started to rise and fall later than goods prices.
"The persistence is only apparent," Panetta said.
Extinguishing the last of the undesired inflation pressures, often called the last mile, may just require a bit more patience, he added.
The ECB sees inflation oscillating above its 2% target for the rest of this year but sees a downward trend restarting next year, with price growth moving to 2% by the close of 2025.
Markets broadly expect rate cuts in September and December, taking the ECB's deposit rate to 3.25% from its 4% peak, cut to 3.75% on June 6.
Speaking later at the same conference, ECB chief economist Philip Lane said the ECB's recent rate hikes had had a "robust and, if anything, stronger" effect in curbing lending than previous tightening cycles.
