Intriguing Debate: ECB Contemplates if Interest Rates Should Fall Below Neutral Level

According to a recent report, European Central Bank policymakers have started debating whether interest rates need to be reduced significantly to stimulate the economy, following years of economic constraints. The ECB has been rapidly cutting rates this year, aiming for a neutral setting that neither slows down nor boosts growth, keeping inflation stable.

While consensus on the matter is still far off, sources indicate that this signals a notable shift in policy discussions. Such a shift could lead to the bank lowering rates sooner and more substantially than currently anticipated.

This discussion emerges amid a rapid downturn in the bloc's economic fortunes, with inflation falling significantly below earlier predictions. This situation raises the risk of price increases remaining below the ECB's target, as happened for nearly a decade prior to the pandemic. Consequently, a small but growing group of policymakers argues that the ECB may be lagging and that deeper rate cuts might be necessary to prevent excessive deflation.