European Central Bank Governing Council: The risk of inflation exceeding 2% is higher and it is not believed that there is a need for further interest rate cuts.

Member of the European Central Bank Governing Council and Governor of the Central Bank of Ireland, Gabriel Makhlouf, dismissed concerns from the public about the inflation rate in the Eurozone possibly falling below 2%, stating that he is actually more concerned about inflation exceeding that threshold. While the European Central Bank expects inflation to temporarily fall below the 2% target next year, Gabriel Makhlouf stated that as long as medium-term inflation expectations are anchored around 2%, it is not a problem. He pointed out that food inflation is currently trending upwards this year, at around 3%, which is an area that needs special attention. Gabriel Makhlouf stated, "Overall, I am more concerned about the pressures that will push inflation up, rather than those that will suppress growth." "I am more worried that inflation will be above, rather than below 2%." Gabriel Makhlouf's remarks highlight that despite inflation in the Eurozone nearing the target level, policymakers remain vigilant about the uncertainties facing the economy. They are concerned about issues such as tariffs, increased government spending, and the Russia-Ukraine conflict, which could all push inflation in different directions. Several European Central Bank officials had previously stated that they believe the risks to the outlook for prices are broadly balanced. Gabriel Makhlouf holds a different view, stating that he believes the inflation risks are "slightly skewed to the upside." He also mentioned that recent economic data has given him "greater confidence" in the ECB's September forecast. The ECB's latest forecast predicts that Eurozone GDP will grow by 1.2% and 1% in 2025 and 2026 respectively. Gabriel Makhlouf stated, "The situation might change quickly, for example with an escalation in trade tensions, but leaving these factors aside, the European economy has shown resilience." Since June, the European Central Bank has kept interest rates unchanged, with officials stating that the current level of 2% "appears appropriate". Analysts and investors believe that there is little likelihood of further easing in the short term from the ECB. Gabriel Makhlouf also agrees with this view, saying that "the market may not be wrong." He stated, "We may be in a phase now where we are close to meeting our target. I think the market is making a similar judgment. I hope people also understand how we see risks and the level of uncertainty that we have not yet been able to eliminate." However, some European Central Bank officials still believe that there is a possibility of further rate cuts. Governor of the Bank of France, Francois Villeroy de Galhau, stated on Tuesday, "If there were to be any further action, a rate cut is more sensible and more likely than a rate hike, as the downside risks are greater." In contrast, Gabriel Makhlouf hinted that the next steps could go in any direction. He said, "For me, the next step is two-way. I do not think we need to cut rates further. I am inclined to think that our current stance is broadly appropriate, but it must be noted that there are currently still price pressures."