ECB official: No bias toward rate cuts, inflation “basically around 2%”

A senior European Central Bank official said Wednesday, the world faces uncertainty levels never seen before as policymakers try to figure out their next move on interest rates.

José Luis Escrivá, who sits on the ECB’s Governing Council and runs Spain’s central bank, made the comments while speaking to Spanish senators in Madrid. “We’re in a very complex world,” he told them. “We’re at uncertainty levels without precedent regarding economic policies.”

But it’s not all bad news. Escrivá pointed out that inflation has come back down to where the bank wants it. “On inflation, basically we are already around 2%,” he said.

Earlier the same day at a Bloomberg conference in Madrid, Escrivá pushed back hard against the idea that the ECB is planning to cut rates anytime soon. He said rate hikes are just as likely as cuts right now.

No bias toward rate Cuts

“Full optionality means full optionality, not a cut,” Escrivá told the audience. The council thinks everything is balanced, he explained, and they’ll keep deciding what to do meeting by meeting. There’s nothing in any ECB statement suggesting cuts are more likely than increases, he added.

Most people expect the central bank to keep rates where they are at the next meeting on October 30. Several officials have said recently they’re not keen on making changes. Though some have hinted that if anything happens, it would probably be a cut.

Philip Lane, the ECB’s chief economist, said this week he doesn’t see any need to act right now. But if policymakers had to choose, he thinks it would be between doing nothing or cutting.

François Villeroy de Galhau from France’s central bank said another cut can’t be ruled out. Olli Rehn from Finland said in a podcast Wednesday that things look good at the moment, but he sees some downside risks to inflation ahead.

Escrivá thinks markets have already priced in what’s coming. “What markets are expecting is nothing,” he said. “It’s basically stable rates for some time.”

Energy driving short-term price swings

The ECB’s inflation target is 2%, and officials think they’re on track. But the latest number came in at 2.2%, the highest in five months. Spain had the worst rate among the four biggest euro economies at 3%.

Escrivá wasn’t worried about those bumps. He blamed energy prices and other unpredictable stuff. “Short-term fluctuations are just resulting from, as has been the case, energy prices and volatile elements,” he said. What matters is the medium-term outlook, and their projections show inflation hovering around 2% for the next few years.

Economic growth in the euro zone is another story. It dropped to just 0.1% in the second quarter, and economists think the current quarter will be about the same before things pick up at year’s end. President Donald Trump’s trade tariffs aren’t helping either.

Someone asked Escrivá if trade risks might push the ECB to do an “insurance cut” like the Federal Reserve did during Trump’s first time in office. He said no.

“Central banks, if they feel that there is a scenario that might be very damaging, let’s put it this way, very sizable, and the likelihood of materializing is significant, and they feel if this might happen and the likelihood is not negligible, I should make a preemptive move,” he explained. “But we are not in this stage.”

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