Philip Lane: ECB neutral interest rate remains unchanged

Philip Lane, Chief Economist of the European Central Bank (ECB), stated that the neutral equilibrium interest rate for the eurozone has not changed recently. He noted that macroeconomic fundamentals remain stable, and current rises in long-term market interest rates likely reflect market expectations regarding central bank behavior rather than shifts in the neutral rate.

Lane indicated that the impact of artificial intelligence on this rate is not yet significant, as AI is currently in an investment phase—primarily in the US and China—while AI investments in Europe account for only about 10 percent of total investments according to ECB estimates.

Furthermore, Lane emphasized that the ECB will need to adopt a more active monetary policy to navigate a more volatile world. He cited structural changes such as geopolitics, trade, the international financial system, AI, automation, and climate change as drivers of this volatility. While these shocks may not necessarily change average inflation rates, they will require the ECB to respond with varying degrees of moderation or non-linear actions.