The European Central Bank (ECB) has room to further reduce its key interest rates as inflation recedes towards the target, but it should closely monitor potential upside risks, the Governor of the Central Bank of Cyprus and a member of Board of Directors of the ECB, Christodoulos Patsalidis.
With the Eurozone economy showing signs of slowing down and possibly proving to be weaker than forecast, Mr Patsalidis said in an interview with Bloomberg that the same cannot be said for price pressures and for this reason the The ECB Board should be careful not to withdraw the restrictive monetary policy too early.
"If there are no upward surprises in inflation then we can and should continue to cut interest rates," said the Governor of the Central Bank in his interview with the Bloomberg agency, from Washington where he is for the regular meetings of the International Monetary Fund and the World Bank .
He added that December is important as there will be more data, including forecasts for economic growth. "Consequently we will be in a better position to assess our attitude," he added.
Following the ECB's decision to cut interest rates for the second time in a row and amid growing expectations of a further cut at the December meeting, Mr Patsalidis advocated gradual steps rather than "severe cuts" to avoid volatility and the uncertainty. So far the ECB has opted for a gradual rate cut of 25 basis points.
A reduction at a rate of 50 basis points would only be justified "if the situation worsens significantly", said Mr. Patsalides, noting that although the eurozone economy is slowing down, it is moving towards a "soft landing", i.e. avoiding recession.
"However, there are risks and geopolitical upheavals and the global environment is becoming more dangerous and less predictable," he concluded.