May need to go below neutral to sustain inflation

European Central Bank (ECB) Governing Board Member Mario Centeno noted that deflationary pressures within the European economy are becoming a concern for policymakers. Dropping interest rates below neutral in order to stimulate the economy may be necessary, according to Centeno.

Key highlights

Undershooting 2% inflation is a risk if investment doesn’t pick up.

We may need to go below neutral rate to sustain inflation at 2%.

Pretty clear, we need to keep downward trajectory of interest rates.

I’m ok with gradual rate cuts of 25 bps.

Europe must be united in face of potential tariffs; I see negotiations ahead.