Frankfurt: The European Central Bank (ECB) plans to further loosen its policy rates this year but must strike a balance to avoid both a recession and delays in reducing inflation, ECB chief economist Philip Lane said.

According to Anadolu Agency, Lane explained in an interview with Austrian newspaper Der Standard that if interest rates decrease too rapidly, it could complicate efforts to control services inflation. He stressed the importance of not allowing rates to remain elevated for an extended period, as this could weaken inflation momentum, causing the disinflation process to drop below the targeted 2% instead of stabilizing at that level.

The ECB, aiming for inflation to reach its 2% target by mid-2025, implemented four interest rate cuts last year and anticipates making another four this year, with the majority expected in the first half. Lane highlighted the importance of reducing services inflation, which has hovered around 4% for most of 2024, as a critical factor in managing overall price increases.

This year, wage growth, a key contributor to pricing pressures, is projected to be lower, which is expected to support further reductions in inflation, which stood at 2.4% in December. Lane also mentioned that despite economic growth being nearly stagnant for much of the past year, he does not foresee significant recessionary risks that would necessitate sharp monetary easing.