Published 17:53 IST, May 10th 2024
ECB signals potential June rate cut in latest meeting account
Eurozone inflation is projected to regress to 2% next year, prompting ECB to consider initiating interest rate cuts from historically high levels in June.
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The European Central Bank (ECB) has laid the groundwork for a potential interest rate cut in June, according to the account of its April meeting released on Friday.
Eurozone inflation is projected to regress to 2 per cent next year, prompting ECB policymakers to consider initiating interest rate cuts from historically high levels in June, the meeting's account revealed.
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Although the ECB opted to maintain interest rates last month, it was unequivocal about its next move being a reduction, likely on June 6, provided that wage and inflation data remain on their current trajectory.
The account noted that it was deemed feasible for the Governing Council to commence easing monetary policy restrictions in June.
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Some policymakers advocated for initiating easing measures as early as April. However, this suggestion was ultimately overruled by a significant majority, which advocated for patience until further wage and price data were available.
While a few dissenting voices argued that ECB rates would continue to constrain the economy even after an initial cut, the prevailing view was to wait for more data before taking action.
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Recent statements by policymakers suggest that the June 6 rate cut is highly probable, although the trajectory beyond that remains uncertain, particularly in light of potential inflation volatility and a potential delay by the US Federal Reserve in its own rate adjustments.
While many anticipate multiple rate cuts this year, particularly in September and December, ECB policymakers emphasize that the timing of future moves should not be predetermined to maintain flexibility in responding to abrupt changes in economic conditions.
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There has been a shift in the ECB's stance regarding the risks of undershooting the inflation target, now seen as being as significant as the risk of overshooting it.
Markets are now pricing in up to three rate cuts this year, with inflation expected to hover around 2.4 per cent for the remainder of the year before moderating to the ECB's 2 per cent target by 2025.
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The ECB remains confident in the quality of its forecasts, with incoming data aligning closely with projections, signalling increased confidence in the accuracy of its economic forecasts after a period of volatility.
However, the ECB's policy decisions are not solely determined by the actions of the US Federal Reserve, though the global impact of Fed decisions on financing conditions underscores the need for caution and flexibility in ECB policy.
(With Reuters inputs)
17:53 IST, May 10th 2024