The ECB executive urged policymakers to stay patient on rate cuts until economic trends become clearer.
European Central Bank (ECB) Executive Board member Madis Muller warned that China’s move to restrict rare earth exports could reignite price pressures in the eurozone if the measures ripple through the global economy.
Muller noted that with interest rates currently at an appropriate level, policymakers should remain patient while closely monitoring developments that could sway inflation in either direction.
Heightened trade conflicts in the market spark tension among investors
During the 2025 IMF’s annual meeting, scheduled to take place from October 13 to 18 at the IMF and World Bank Group headquarters in Washington, D.C., Muller pointed out that China’s export controls are an example of how trade barriers set by other nations can have inflationary effects in Europe as well.
The Governor of the Bank of Estonia also mentioned that insufficient essential material could raise prices for certain goods, even if it hurts the economy. Hence, according to Muller, this situation contradicts the belief that Trump’s additional tariffs would lead to European deflation.
Regarding Chinese export limitations, Beijing’s new export regulations stipulate that foreign firms must obtain approval from the Chinese government before exporting products that contain even small quantities of specific rare earths sourced from the country.
In response to this limitation, US President Donald Trump threatened to impose an extra 100% tariff on Chinese goods. This heightened conflict between the US and China has sparked concerns among investors in the market regarding the possibility of a fierce trade war between the two. As a result, they have called on the ECB to consider the geographic risks that could affect their predictions.
This has led the central bank to anticipate that price growth will decline drastically below its 2% target in 2026, before picking up pace again in 2027. “The risks linked to this forecast are currently more or less balanced,” said Muller.
The ECB executive further explained that weakening the recovery process could lower inflation. However, he still pointed out the likelihood of higher inflation amid ignited trade conflicts. Therefore, with these considerations in mind, Muller speculates that the economy might recover swiftly, as it could turn out either way.
Muller calls on officials to be patient as debates on interest rate cuts intensify
After lowering the deposit rate to 2% eight times, several ECB officials think they should hold off on making further adjustments to borrowing costs until something truly surprising happens in the economy.
This decision was weighed during Müller’s remarks, when he stated that with inflation at 2% and interest rates in a range that encourages economic recovery without resulting in slowdowns, officials need to be patient and make their decision based on what is likely to happen in the economy in the coming months.
Even with this statement, some of his colleagues still hold the belief that further rate cuts are needed. In response to these contradictions, Bank of France Governor Francois Villeroy de Galhau mentioned in an interview this week that they expect to see a reduction rather than an increase next.
Muller disagreed, saying the ECB could take action in either way. “It really depends on how things unfold, and it is very uncertain what we might need to do next in terms of changing rates,” he explained. Based on his argument, he has no reason to start leaning toward making things easier.
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