ECB’s Centeno sees risk of undershooting inflation goal, wants gradual, steady rate cuts

LISBON (Reuters) -Inflation in the euro zone has slowed to converge with the European Central Bank’s 2% target and the risk now is undershooting the goal, ECB policymaker Mario Centeno told an event in Washington on Tuesday.

He called for a “gradual, steady and predictable reduction in interest rates” to their neutral level, which he said was “maybe 2% or slightly lower”.

“It’s possible that, as we approach this figure, we need to really evaluate…but certainly, at 3.25% as it is right now, the deposit rate is still way above the neutral level,” Centeno said.

He added that the ECB would be dependent on incoming data, such as from the labour market, to show whether larger rate cuts may be needed.

The ECB lowered interest rates for the third time this year, by 25 basis points, on Thursday and investors see rate cuts at each of the central bank’s next four or five meetings amid signs inflation could ease more quickly than previously thought while growth in the euro zone remains weak.

Its deposit rate stands at 3.25%.

“I see more risks in undershooting target inflation than the other way round and most of the risks…the downside risks that we see right now in our projections, they are endogenous,” he said.

Centeno said there were early signs of a weakening in the labour market, which had previously shown resilience, as well as a lack of consumer and investor confidence in Europe.

“The European economy is not investing and so it is not growing,” he said.