ECB's De Guindos says direction of rates 'clear', but cautious in near-term

Luis de Guindos at the European Central Bank expressed confidence that interest rates were headed lower still, but perhaps more slowly than anticipated.

Speaking at a "Livestreamed MNI Connect" event in London, the ECB's vice-president said that he did not know how many times rates would be cut before 2024 was out.

Nonetheless, on longer time frames, such as looking out to the end of 2025, the direction was clear, he added.

De Guindos drew a comparison with walking in dark room, in which one needs to move slowly and prudently, he explained.

He expressed confidence in the ECB's baseline forecasts, but said that it was simply a matter of risks being present that might derail it.

In particular, he noted the risks derived from geopolitics, which he believed financial markets sometimes had trouble discerning.

Then there were financial stability risks linked to high market valuations, as well as political risks, including the path for fiscal policy in the States after the presidential elections in November.

In any case, he was anticipating a sideways movement in inflation over the subsequent five to six months and said that its behaviour would be "complex".

That would be the result, among other things, due to the impact of notable base effects.

Nonetheless, the policymaker said he had a lot of confidence that inflation would return to target in the back half of 2025.

He also judged that inflation expectations in the euro area were indeed anchored at around 2.0% at present.