ECB starting to debate if rates must fall below neutral level – Reuters

Investing.com — European Central Bank officials have begun to debate whether the time has come to start lowering interest rates to a level that helps stimulate the economy, according to Reuters.

Earlier this month, the ECB slashed borrowing costs by a quarter point for a second straight meeting as policymakers look to address twin slowdowns in inflation and growth in the Eurozone currency area.

It was the first back-to-back interest rate drawdown in 13 years, and served as a sign that the ECB has begun to pivot away from a period of interest rate hikes designed to quell elevated price growth.

Instead, the ECB has indicated that it is refocusing policy on trying to reinvigorate a sputtering Eurozone economy that has struggled to keep pace with the US for much of the last two years.

Even still, officials have so far said they are only aiming to ratchet rates down to a neutral level which, in theory, neither aids nor hinds economic activity and keeps inflation stable.

But, citing conversations with half a dozen unnamed sources, Reuters said the ECB has begun to discuss if rates may need to go below that neutral mark. One source with knowledge of the deliberations said “I think neutral is not enough,” Reuters added.

The sources stressed that any consensus was still far away, Reuters noted.

Business activity and sentiment surveys out of the currency bloc undershot estimates in September. Meanwhile, an updated inflation reading released ahead of the ECB’s announcement showed that headline consumer price growth decelerated to an annualized 1.7% last month. The figure, which was initially 1.8%, is below the central bank’s stated 2% target.

“The incoming information on inflation shows that the disinflationary process is well on track. The inflation outlook is also affected by recent downside surprises in indicators of economic activity,” the ECB has said.