Talking about cutting interest rates is no longer taboo, even among the central bankers milling around the World Economic Forum in Davos, dogged by questions about the ECB's next steps. The governor of the French central bank, Francois Villeroy de Galhau, assures that interest rates have reached their peak. “They shouldn't be” above current levels, and “the next step will be a cut, probably this year,” he said at a panel on interest rates. But the mantra remains prudence: “It is too early to declare victory, the work is not yet finished, even if our tightening maneuver was more successful than we predicted here in Davos a year ago,” he explained. Even the governor of the Portuguese central bank, Mario Centeno, sees the beginning of a new era and is convinced that the ECB should not pull too hard to jeopardize this year's already weak recovery. However, the prospects of a return in interest rates still depend on the well-known divide between hawks and doves. Austrian central bank governor Robert Holzmann warned as he left Davos that markets will be very disappointed with the next steps because “it is inconceivable” that the government council expected next week will talk about easing monetary policy.
