ECB's Centeno sees interest rates falling to about 2% as inflation under control

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Finance

Posted By Global Banking and Finance Review

Posted on January 16, 2025

ECB's Centeno sees interest rates falling to about 2% as inflation under control

By Sergio Goncalves

LISBON (Reuters) -The European Central Bank should continue to lower interest rates to about 2% as inflation in the euro zone was generally under control, ECB policymaker Mario Centeno said on Wednesday.

He said the rise in euro zone inflation to 2.4% in December "was already expected" and reflected the fall in energy goods prices in the same period in 2023.

"The ECB interest rate will continue on a trajectory ideally towards values close to 2%, this is the expected path," Centeno, who is also governor of the Bank of Portugal, said in an interview with public broadcaster RTP.

The ECB cut interest rates four times to 3% last year and investors expect three or four more moves in 2025 as euro zone growth remains anaemic and inflation is expected to edge closer to the 2% target in the coming months.

"We see inflation in the coming months, quarters and probably a year-and-a-half converging to values probably even slightly below 2%," Centeno said.

He added that the process of lowering rates should be "gradual over the next few months", but warned against generating inflationary pressures through demand and urged restraint in budgetary policies, companies' profit margins and wage increases.

Centeno, whose five-year term ends in June, said he would like to serve a second term, but added the decision "is not in my hands" as it depends on Portugal's Prime Minister Luis Montenegro.

(Reporting by Sergio Goncalves; Editing by David Latona and Jamie Freed)

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