2024-07-02
Interview with Gediminas Šimkus, Chairman of the Board of Lietuvos bankas conducted by Mark Schroers and Alexander Weber. The interview was published on 1 July 2024.
“Expectations for two more cuts this year are in line with my own thinking, if data evolve as expected,” the Lithuanian central-bank chief said Monday in an interview. “Our monetary policy is still very restrictive. I’m sure that everything above 3% is still restrictive territory. So we have some room for maneuver.”
Speaking on the sidelines of the ECB’s annual forum in Sintra, Portugal, Šimkus said officials should be ready to act at any meetings — not just the quarterly gatherings for which staff produce new economic projections. “I think the case for a July cut has gone,” Šimkus said. “But for the future, we shouldn’t restrict ourselves to projection meetings. If we agree that there’s a need for a cut at a non-projection meeting, we should be able to act.”
Officials are gathering at a sensitive time for Europe as markets weigh how much power France’s far right will end up with after elections conclude next weekend. The drama there is overshadowing debate on the path for interest rates, which the ECB began cutting from record highs last month. Stubborn inflation has clouded the path for further moves. June’s reading for consumer-price growth in the euro area will come on Tuesday, with analysts estimating a slight slowdown to 2.5% from 2.6%. Šimkus said that despite an uptick earlier this year, it’s still on track to ease further toward the 2% goal.
“We knew that the last mile in the disinflationary process would be difficult and bumpy,” he said. “But inflation is clearly converging to our target. I don’t think we’re underestimating its stickiness.” On French bond yields, which spiked after President Emmanuel Macron called the snap parliamentary election, the Lithuanian official said he doesn’t see “disorderly” market developments. “The ECB devised instruments to address various weaknesses in financial markets,” he said. “We have those tools, but they’re not needed at this juncture because monetary policy is transmitted smoothly across all euro-area countries.”