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Interview with Governor Mário Centeno to Bloomberg

ECB Should Slow or Pause Rate Hikes in May, Centeno Says

A quarter-point increase in interest rates is the most the European Central Bank has to deliver at its next meeting, Governing Council member Mario Centeno said, playing down concerns over the strength of underlying inflation. 

Either a pause, or a slowdown in the pace of hikes is possible as headline price gains in the euro zone retreat and wage data show “no domestic pressure,” the Portuguese central bank chief said in an interview in Washington. 

“For the May decision, either zero or 25 are numbers that are feasible,” Centeno said on the sidelines of the International Monetary Fund Spring Meetings. “I don’t see any reason whatsoever to do more.” 

The comments conflict with the message from several other ECB officials, who are still considering a fourth straight half-point move to tackle underlying inflation that — unlike the primary measure including energy and food costs — hasn’t yet peaked.

Some of Centeno’s colleagues have also expressed confidence that the 20-nation euro area won’t be affected too significantly by the recent financial-sector turmoil that engulfed lenders in the US and Switzerland.

Slovenian central-bank Governor Bostjan Vasle said this week the ECB’s choice for next month is between 25 and 50 basis points, depending on data in the coming weeks on bank credit, economic growth and prices. Bundesbank President Joachim Nagel said it’s “certainly far too early to stop raising rates.”

Centeno, however, argued that ECB policy will remain tight “even when we pause” — because borrowing costs will stay above the level that’s considered neutral for economic expansion. He also warned against taking the fight against inflation too far.

“If we go back to very low levels of the natural rate, we’ll be going back to pre-Covid times,” he said. “That’s something that we don’t want. We shouldn’t try to undershoot on inflation.”

Core price growth, which strips out volatile components, accelerated to a record 5.7% last month. A reading for April, due just before the ECB’s next decision, will serve as a key input for that meeting. 

“We target headline inflation — we don’t target core,” Centeno said. “We have to follow core closely because it may reveal pressures ahead. But so far, given the lag in which the shocks to headline are transmitted to core, both positives and negative, I still don’t see reasons to be very concerned.”

Another reason to proceed carefully is that central banks around the world have been tightening policy “in a synchronized way that we haven’t experienced before,” he said. “This means the impact of our action is magnified, so we can reduce inflation faster with less tightening.”