European Central Bank Maintains Cautious Tone
Edward Scicluna, a member of the European Central Bank's Governing Council and Governor of the Central Bank of Malta, recently stated in an interview that the impact of the recent U.S. tariff hikes remains highly uncertain. Therefore, the ECB should not rashly undertake further monetary policy actions in the short term.
Scicluna noted that U.S. tariffs could have a dual impact on Eurozone inflation: on one hand, import costs rising could lead to higher consumer prices; on the other, a decline in external demand could lower the overall price level. "Currently, it is impossible to determine whether tariffs will ultimately cause inflation to rise or fall. We must remain calm and patient."
He emphasized that the Eurozone's interest rates are currently around 2% in a neutral range, providing policymakers with room to observe and adjust. "We are now at a stage where we can wait and see, without the need for hasty actions."
Policy Meeting Outlook: Stable in October, Debate in December
Scicluna indicated that significant policy changes are unlikely at the ECB policy meeting in Florence, Italy, at the end of October. "I would be very surprised if any major directional decisions were made at the next meeting," he admitted.
However, he expects the December meeting to become a new policy watershed. "By then, we will have more economic and inflation data at hand, and discussions will be more intense. If action is needed, it will be the right time."
Market analysts believe that this move by the ECB shows its desire to first observe the ripple effects of U.S. tariffs, then evaluate whether internal demand and employment data in the Eurozone support further rate cuts. Over the past few months, the ECB has sent signals of "patience" at several meetings, aiming to avoid prematurely entering a new easing cycle.
Inflation Eases, Economy Remains Resilient
Discussing the overall economic situation in the Eurozone, Scicluna stated that despite uncertainty in the external environment, the European economy is "more resilient than expected." Latest figures show that core inflation in the Eurozone remains within the 1.7% to 1.9% range, with economic growth moderate yet stable.
"Our baseline forecast is gradually being validated — inflation is approaching the target, while economic activity remains positive." Scicluna added that current economic data do not indicate an urgent need for stimulus.
He pointed out that manufacturing has shown signs of stabilization, with the services sector and consumer spending providing support. The Eurozone's overall unemployment rate remains low, indicating a resilient labor market.
Political Risks Pose Potential Threats
Although macroeconomic data is generally solid, Scicluna warned that the Eurozone's biggest risk currently comes from the political realm. He believes Europe's progress in internal reforms is slow, overly focused on changes in U.S. policies, while neglecting structural issues of its own.
"Europe must learn to focus on itself," he stated. "We need to deepen market reforms and drive digital transformation rather than passively respond to external policy shocks."
Scicluna stressed that if European countries continue to lack consensus on fiscal consolidation and labor market reforms, long-term competitiveness may be harmed. This viewpoint aligns with recent concerns from some ECB members who believe that political fragmentation is weakening the transmission of monetary policy.
Market Interpretation: Euro May Remain Volatile
Market consensus suggests that Scicluna's remarks further reinforce the ECB's short-term "wait-and-see" stance. Consequently, the euro-to-dollar exchange rate saw slight fluctuations, and market trading turned cautious.
Analysts point out that the ECB's "observant posture" implies that investors need more patience to wait for clearer economic signals. If the impact of U.S. tariffs is proven limited while Eurozone inflation remains stable, the ECB may maintain its policy unchanged by year-end.
Frankfurt financial analyst Lars König commented: "Scicluna's speech reflects the consensus within the ECB — the most important thing now is not action, but avoiding misjudgments."
As the October policy meeting approaches, the ECB's cautious stance is expected to continue dominating market expectations, while the December meeting could become a critical juncture for determining the future direction of interest rates.
