Christine Lagarde, President of the European Central Bank (ECB), at a press conference on the interest rate decision in Frankfurt on Thursday, March 7, 2024.
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The European Central Bank held interest rates steady for the fifth consecutive day on Thursday, giving its clearest signal yet of an impending rate cut, despite uncertainty over the U.S. Federal Reserve’s next steps.
“If the Governing Council’s updated assessment of the inflation outlook, the dynamics of underlying inflation and the strength of monetary policy transmission would further strengthen its confidence that inflation is moving towards target on a sustained basis, it would be appropriate to lower the current value “to reduce the level of monetary policy restriction,” it said in a statement.
In a press conference after the announcement, ECB President Christine Lagarde said this “important” new rate was a “loud and clear indication” of the bank’s current sentiment.
The ECB has not made any direct reference to easing monetary policy in its previous communications.
The central bank of the 20 euro currency countries raised its key interest rate to a record 4% in September. Since then, this sentence has been left unchanged at every meeting.
Policymakers and economists see June as the month when interest rate cuts could begin after the ECB cut its medium-term inflation forecast. Price increases in the euro zone have since cooled more than expected in March.
June will also be the first month in which policymakers will have complete data on first-quarter wage negotiations – an area that raises concerns about possible inflationary impacts.
The ECB said on Thursday that incoming information had “broadly confirmed” its medium-term outlook, with falling inflation attributed to a decline in food and goods.
According to LSEG data, market prices suggest a 25 basis point decline in June.
“For some time now, the ECB has essentially committed itself to a rate cut in June. The hurdle for this not being implemented is high. But there is a wide range of possible outcomes in subsequent months, depending on further progress in fighting inflation.” “So far, the data is trending in the dove’s favor,” Hussain Mehdi, director of investment strategy at HSBC Asset Management, said in a note.
The Fed’s next steps
In the US, expectations of a summer interest rate cut by the Federal Reserve were significantly dampened as inflation data came in higher than forecast on Wednesday.
This has raised questions about how European central banks will respond to developments in the world’s largest economy.
Asked on Thursday whether the U.S. consumer price index numbers could impact the ECB’s rate-cutting path, Lagarde said: “Of course, everything that happens is important to us and will be incorporated into the forecast in due course, which will be in June “The United States is a very large market, a very large economy, and also an important financial sector.”
“We do not assume that what happens in the euro area will be a reflection of what happens in the United States,” Lagarde said, emphasizing that economies, political regimes and fiscal policies are all different.
She declined to specify whether the euro’s exchange rate against the U.S. dollar would play a role in policymaking.
But in comments reported by Reuters that preceded the ECB’s decision, Per Jansson, deputy governor of Sweden’s central bank, said on Thursday that it could pose a “problem” for both the Riksbank and the ECB if the Fed cuts interest rates Excludes year 2024.
In the Riksbank’s case, this would be because the weakening of the Swedish krona was driving inflation, Jansson said in a speech.
European data continues to move toward the 2% inflation target and keeps the ECB on track for a rate cut in June – but the pace and size of further cuts this year “may depend more on US data and Fed policy,” it said Andrew Benito, chief European economist at Eisler Capital, told CNBC’s Silvia Amaro ahead of the rate announcement.
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2024-04-11 14:53:27
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