MADRID (Reuters) – Recent inflation data was “good news” and “a positive surprise”, but any future decisions on monetary policy would have to depend on the reality on the ground, ECB Vice-President Luis de Guindos said on Monday.
Euro zone inflation tumbled to 2.4% last month, coming well below expectations for the third straight month, fuelling market bets that European Central Bank interest rates will come down much quicker than the bank now guides.
De Guindos said that central banks needed to be cautious and that “it was too early to declare victory”.
“There is a base effect, there could be a potential inflationary impact of the withdrawal of government measures … and wage developments … could have an inflationary impact,” De Guindos told a financial event.
He did not elaborate on the path of future rate decisions apart from saying decisions would be data-dependent, adding that the current level of interest rates if sustained in time should be enough to return to ECB’s mid-term 2% inflation target.
He said that the markets were expecting both a soft landing and a prolonged disinflation process in the euro zone, but warned: “Such an assumption may not be confirmed in reality due to high uncertainty.”
Investors see the first cut in April and a total of 115 basis points of moves in 2024, even as ECB President Christine Lagarde and several other policymakers are making the case for several quarters of steady rates to fully extinguish inflationary pressures.
The ECB raised its deposit rate to a record high 4% via ten straight moves ending in September and sees inflation inching up in the coming months before coming back to its target in the second half of 2025.