ECB Risks Becoming Too Restrictive, Cipollone Warns – Reuters

FRANKFURT (Reuters) – The European Central Bank (ECB) can continue to reduce interest rates in light of the slowing inflation, as there is a concern that the bank’s policies could become overly restrictive, according to ECB board member Piero Cipollone in a recent interview.

The ECB lowered rates in June from a record high and is expected to ease again soon. However, the growth outlook has worsened over the summer, prompting discussions among policymakers about whether they are falling behind in their approach.

While Cipollone did not explicitly call for a rate cut in September—like many of his colleagues—he noted that inflation remains aligned with projections made three months ago, which already anticipated policy easing in September and December.

"The data so far confirms our direction of travel and I hope that they will allow us to continue to be less restrictive," Cipollone stated. He warned about the risk of an excessively tight stance, emphasizing the need to ensure inflation aligns with targets without unnecessarily hindering economic growth.

The markets are anticipating at least two additional rate cuts for this year, in September and December, with a reasonable chance of another adjustment in October. This expectation is driven by the weak growth outlook and predictions that the U.S. Federal Reserve will quickly loosen its policies, prompting the ECB to potentially follow suit.

Cipollone also raised concerns about sluggish growth, which is hindered by a slow improvement in competitiveness. He discussed recent data points like consumer confidence and activity indicators for the manufacturing sector, which have not been promising. "This poses a risk to the euro area growth outlook," he noted.

He emphasized that weak investment indicates that companies lack confidence in a strong recovery, which could negatively impact the bloc’s future growth potential by limiting its ability to develop and adopt new technologies.