ECB's Makhlouf sees one more interest rate cut this year, two is 'too far'

By Francesco Canepa and Balazs Koranyi

SINTRA, Portugal (Reuters) - European Central Bank policymaker Gabriel Makhlouf said on Tuesday he was comfortable with just one more interest rate cut this year as he needed more time to gain confidence inflation was headed to the ECB's 2% goal.

Investors are pricing in at least one, but more likely two more ECB interest rate reductions by December after seeing inflation fall from 10% in late 2022 to just 2.5% last month.

But Makhlouf, Ireland's central bank governor, struck a more cautious tone in an interview with Reuters, even though he expected rates to fall eventually.

"I am comfortable with expectations of another cut," he said on the sidelines of the ECB's Forum on Central Banking in Sintra, Portugal. "I think two cuts today, at the beginning of July, is probably going a little bit too far. I'm not saying I'd rule it out."

The ECB began undoing its steepest ever streak of interest rate hikes last month but President Christine Lagarde said the central bank for the euro zone is in no hurry to lower borrowing costs further as progress from here appeared to be slower.

Data earlier on Tuesday showed inflation in the 20 countries that share the euro slow to 2.5% in June from 2.6% a month earlier.

Makhlouf said he was "pleased" with the data "because it confirms the direction that we are moving in" but he stressed services inflation remained the "number one issue of focus" after a second straight 4.1% increase.

The ECB has singled out wages, which are finally catching up with inflation after falling behind them in 2021-22, as the key driver of prices in the services sector and Makhlouf said he and colleagues should "allow time" to see more data.

"I expect interest rates to be lower than they are today if we continue to be successful, as I expect us to be successful, in achieving our 2% target in a sustainable manner," he said. "The pace at which that happens will depend and where we end up will depend."

(Reporting by Francesco Canepa; Editing by Alexandra Hudson)