Risks to euro zone inflation are balanced and growth is turning out to be stronger than once expected, two European Central Bank policymakers said on Tuesday, reinforcing market expectations for no more rate cuts in the near future.
The ECB has kept interest rates unchanged since June and says that policy is in a “good place,” even if some rate-setters still fear that inflation could fall too far, forcing them to resume easing sometime in 2026.
However, ECB board member Frank Elderson and Croatian central bank Governor Boris Vujcic, both considered moderate hawks, expressed confidence in the outlook, given a recent run of healthy data, a signal that rates would likely stay unchanged in December, too.
“The risks of inflation turning out higher than expected are balanced with those of inflation being lower than expected,” Elderson, who rarely speaks about policy, told Spanish newspaper Expansion.
“The news has been relatively good recently. Some of the risks that we’ve been talking about have gradually diminished,” he said.
Markets see a close to zero chance of a rate cut this year but still price about a 40% chance of one final reduction in the 2% deposit rate by mid-2026.
“We are in a good place in terms of the balance of risks,” Vujcic said in London. “Risks are balanced around the inflation forecast at the moment, and … growth has proven to be more resilient than we thought at the beginning of the year.”
Among key risks, Vujcic highlighted Chinese export diversion, U.S. tariffs and the unpredictable nature of household consumption.
For now, tariffs have not hurt the European economy as much as feared earlier but the effects of import frontloading before the duties came into effect continue to unwind, Vujcic argued.
Households are expected to support growth given a historically high savings rate but Vujcic admitted that the ECB is struggling to understand why consumption has stayed persistently weak.
On China, he said Europe was facing increased competition, particularly in segments where domestic firms have been strong, like car and machinery production, a difficult-to-solve structural problem.
(Reporting by Balazs Koranyi, David Milliken and Dhara Ranasinghe)
