In a lecture delivered overnight, ECB Governing Council member Francois Villeroy de Galhau stressed the importance of maintaining “agile pragmatism” in adjusting the current restrictive monetary policy.

He emphasized that the risk of reducing the ECB’s restrictive stance too late “could indeed become more significant” to the risks of acting prematurely.

Villeroy noted the “risk that inflation undershoots, especially if growth remains subpar”.

He further added, “If we are next year sustainably at 2% inflation, and with still a sluggish growth outlook in Europe, there won’t be any reasons for our monetary policy to remain restrictive, and for our rates to be above the neutral rate of interest.”

At a Bloomberg Newsmaker event, ECB President Christine Lagarde expressed that she was “absolutely confident” that inflation would sustainably return to 2% by 2025. When asked if this target could be reached earlier than ECB’s current projection of late 2025, Lagarde replied, “That would be my hope.”

Despite this optimism, Lagarde emphasized the need for caution, signaling that ECB is not yet ready to declare victory over inflation. She made clear that the future path for monetary policy was dependent on incoming data and that while the direction of policy easing was apparent, the pace of further rate cuts would be data-dependent.

On the question of the neutral rate—the level of interest rates that neither stimulates nor restrains the economy—Lagarde was hesitant to provide specifics, noting that while the neutral rate is likely higher than in recent years, it remains below the current 3.25% deposit rate, which she described as still restrictive.

“If you were to ask me today, ‘Where is it?’, the honest answer is, I don’t know,” she admitted.

ECB Governing Council member Joachim Nagel spoke today, firmly opposing the introduction of dot plots for the Eurosystem, a tool used by Fed to project individual policymakers’ rate forecasts.

Nagel argued that such projections could lead to undue pressure on national governors to prioritize their domestic agendas over the broader interests of the 20-nation eurozone.

“This could potentially influence the Governing Council’s independence,” Nagel warned.

Instead of adopting this approach, Nagel suggested that ECB refine its existing communication strategies. “We should enhance the communication of our existing measures of uncertainty,” he said.

Nagel advocated for the development of new tools such as scenario and sensitivity analyses, as well as improved fan charts, to provide clearer guidance without compromising the Governing Council’s autonomy.

ECB Governing Council member Mario Centeno spoke at an event today, advocating for a measured and consistent approach to reducing interest rates. Centeno emphasized the need for a “gradual, steady, and predictable reduction in interest rates” to their neutral level, which he estimated to be “maybe 2% or slightly lower.”

Centeno highlighted that inflation in the Eurozone has slowed significantly and is now converging toward ECB’s 2% target. However, he expressed concern that the risk could shift to undershooting the target as inflationary pressures ease.

ECB Governing Council member Peter Kazimir expressed growing confidence in the disinflation trend, stating in a blog post today that the path to lower inflation appears to be on “solid footing”.

Kazimir added that if upcoming data continues to confirm accelerated disinflation, the ECB would be in a “strong and comfortable position to continue the easing cycle.”

However, he noted that wage growth and services inflation, two critical elements, have yet to show the expected decline. He added, “If new information points toward higher inflation, we can still slow down the pace at which we remove restrictions in the coming meetings.”

ECB Governing Council member Gediminas Simkus commented today that the disinflationary trend is progressing steadily, though he acknowledged that services inflation remains elevated.

Simkus expects monetary policy to gradually become less restrictive, with the central bank lowering interest rates toward a “natural” level, estimated to be between 2-3%.

However, he emphasized that if the disinflation process becomes deeply “entrenched”, rates could potentially fall below the natural level.