ECB Economist Signals Stronger Case for June Rate Cut

ECB Rate Cut: The European Central Bank (ECB), Chief Economist Philip Lane emphasised the growing momentum behind a potential interest rate cut slated for June. Speaking to Spanish newspaper El Confidencial, Lane highlighted the easing trend in services inflation, bolstering the case for monetary stimulus.

The ECB's intentions have been clear: a rate cut on June 6 is all but assured, contingent upon incoming data reinforcing policymakers' confidence in inflation returning to the 2 per cent target by mid-next year. Lane expressed increased optimism, citing the April flash estimate for euro area inflation and Q1 GDP figures as positive indicators. However, he acknowledged the significance of forthcoming crucial data releases in shaping the ECB's decision-making.

Market sentiment aligns with Lane's outlook, with investors largely anticipating a June rate cut. Yet, uncertainties loom regarding future policy actions, especially after the U.S. Federal Reserve hinted at potential delays in its own easing measures.

Lane underscored the ECB's independence from the Fed's decisions but acknowledged the impact of a widening interest rate gap between major central banks. Such a scenario could weaken the euro and bolster European inflation, potentially constraining the ECB's room for unilateral action.

April's inflation data revealed a notable moderation in services prices, offering a glimmer of hope. Nevertheless, Lane emphasised the ECB's continued vigilance, particularly regarding services, to prevent any derailment of disinflationary efforts.

Currently, overall inflation stands at 2.4 per cent, with the ECB anticipating fluctuations around this level throughout the year before a projected decline in 2025. These dynamics underscore the ECB's cautious approach as it navigates the complex landscape of economic recovery and price stability.

With Reuters Inputs