The Chief Economist of the European Central Bank concludes: the interest rate cut cycle has already been "completed".

Philip Lane, Chief Economist of the European Central Bank, said on Tuesday that the latest round of monetary policy intervention implemented by the bank to control inflation is "done". Speaking at the ECB's annual forum in Sintra, Portugal, Lane said: "We do believe that the last cycle is completed, in the sense that the job of bringing inflation down from its peak of 10% to 2% has been done. But looking ahead, we need to be ready to ensure that any deviations we see won't persist, won't alter the medium-term outlook." Eurozone inflation in May was at 1.9%, below the ECB's target of 2%. Meanwhile, the ECB has already reduced key interest rates from last year's peak of 4% to 2%. Market pricing currently indicates an expected further rate cut of 25 basis points to 1.75 by the end of this year. When asked what "done" means for this cycle, Lane explained that it means the ECB has successfully eliminated the price shocks caused by the energy crisis and supply chain restrictions in 2021 and 2022. However, he warned that there are now "new shocks affecting the system", and monetary policy needs to adapt to these shocks, as there may be "some cyclical downward fluctuations". The ECB is no longer responding to price shocks and is closely monitoring trends in the energy market, exchange rates, and inflation expectations to ensure it doesn't "overreact" to minor deviations in inflation. They are also alert to not overlook any changes affecting the medium-term outlook or "persistence" factors affecting the domestic economy. Risk is tilted downwards Also in Sintra, Pierre Wunsch, the Governor of the National Bank of Belgium, stated that the risks for euro area inflation and growth are now tilted downwards. Wunsch said on Monday evening: "There is now broad consensus that we are very close to (the ECB's 2% inflation) target and the work is essentially done." He pointed out that Europe has experienced two years of "relatively slow growth" and any recovery could be delayed due to global uncertainties. He added: "If we have to take more action, it will most likely be further rate cuts. I'm not advocating for that, but if we were to discuss it, that's the direction it's more likely to take." Wunsch stated that the ECB will monitor economic data in the coming months to see if there is any improvement in euro area growth, particularly in production - if there is no improvement, the central bank may need to "provide some more support."