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RPT-MNI INTERVIEW: 'Good Prospects' For Further Cuts-Centeno

(MNI) SINTRA, Portugal

(Repeats story first published on July 3)

There are “good prospects” for further rate cuts in 2024 if the baseline assumptions continue to materialise, Bank of Portugal Governor Mario Centeno told MNI Wednesday.

“Further rate cuts are expected this year and if the baseline continues to materialise I see good prospects for us to get over the tightening period in a way that does not create volatility in our economies,” Centeno said on the sidelines of the ECB's monetary policy forum in Sintra.

The economic data was moving the ECB's “way”, Centeno said, with growth and inflation “largely in line with our projections. We had the nice growth surprise in Q1 and inflation numbers are matching our forecast since March”.

Looking ahead, the aim is to keep the recovery on track and underpin the solid labour market, he added.

GAMBLE

“The gamble, the trade off we have in front of us is to know if the labour market will hold through this tightening period to allow for the soft landing or not. To me everything hinges on employment and wages in the euro area," he said.

“Because even with Q1 numbers coming out higher than expected, growth is very low in the euro area, below potential. And to keep the discussion open, PMI May numbers were not very good across countries and for the euro area as a whole,” he added.

“We will have a soft landing, but there is still zero growth. In the forecast, growth is partly coming through consumption and that requires employment resilience and an increase in real wages. For us it is important for this weak -- and I underline weak -- recovery to materialise,” he said.

The baseline outlook is solid, Centeno noted, but he highlighted that risks exist “and we have to trade them off against our decision."

“Producer prices have been negative since the end of 2022 - this is worrisome, we must take that on board,” he said.

Sticking with the ECB's mantra of meeting-by-meeting and data dependent decisions, Centeno said all ECB Governing Council meetings are ‘live', and that while the debate may deliver different results in different meetings, the key thing was the overall trajectory.

MNI Rome Bureau | +34-672-478-840 | santi.pinol.ext@marketnews.com
MNI Rome Bureau | +34-672-478-840 | santi.pinol.ext@marketnews.com

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