Centeno concerned about low inflation, but “no rush” to cut interest rates

The governor of the Bank of Portugal, Mário Centeno, is more concerned about Europe’s return to low inflation levels than the risks of high inflation. Even so, he assumes that he is “in no hurry” to lower interest rates in order to counter this scenario.

In an interview with Bloomberg on the sidelines of the European Central Bank’s annual forum in Sintra, Centeno, who is coming to the end of his mandate, recalled the history of “very low inflation” that Europe has lived with for a long time and that the fundamentals have not changed. “That doesn’t mean we have to rush”, said the Portuguese governor.

Emphasising that the growth figures for the economy in the second quarter “will be very important” in this analysis, he explained that, “if it confirms the figures for the first quarter, it’s a story; [but] if it falls back a little in terms of growth, that raises concerns for the sustainability of the 2% inflation target”.

“Are you more worried about inflation falling than rising?” asked the Bloomberg journalist. “Yes”, replied Centeno. “That’s the profile for the inflation forecast. We’re going to start 2026 with a low figure. There are base effects that explain this. But we have recent history in Europe”, added the governor of the Portuguese central bank.

Mário Centeno believes that the European Central Bank (ECB) needs to be “cautious” about this possibility.

The governing council is scheduled to meet on 23 and 24 July to define the course of monetary policy in the Eurozone. The markets are anticipating a further reduction in rates, before taking a break until the end of the year.