Headline: ECB's Simkus: The Key Focus is Not the Rate Cut Size, But the Ultimate Destination of Interest Rates

European Central Bank Governing Council member and Lithuanian Central Bank President Gediminas Simkus stated that the focus should not be on the potential interest rate cut in December, but rather on where borrowing costs will ultimately settle. Simkus explained, "When I read the data, I don't see a case for a 50 basis point cut. More crucial than a single cut is where we are headed. Rates are still in restrictive territory and, according to the baseline, we will need to lower them further. If we proceed with a rate cut in December, reaching 3% might mark the upper boundary of the neutral rate range according to some estimates."

Speaking after purchasing managers' indexes indicated that the decline in private sector activity in the Eurozone had extended into a second month, Simkus noted that the region's two largest economies are exerting pressure on production. He stated that although the region is "rather stagnant," some sentiment indicators suggest that downside risks are materializing, adding, "Growth this year and next year is likely to be weaker than anticipated in September."

Last month, ECB staff projected growth of 0.8% and 1.3% for 2025 and 2026, respectively. Nevertheless, Simkus observed that the evidence of weak expansion alone does not justify a larger response and noted that the ECB is not currently lagging behind the curve.