Several central bank policymakers said the board remains cautious and does not want to rush to ease monetary policy in case inflation pressures have not fully subsided. Services sector inflation has remained stubbornly at 4% for the past few months, and geopolitical risks such as a Middle East conflict could have sudden and significant economic consequences.
European policymakers are still debating how many and how big rate cuts to make. The IMF has recommended that the ECB cut interest rates by 0.25 percentage points per quarter until September 2025, and reduce the deposit rate from 4% to 2.5%.
Investors also expect the ECB to cut interest rates three times this year at meetings in June, September and December, when it issues new quarterly forecasts for the economy and inflation.
Latvia's central bank governor, Martins Kazaks, said he had “no major disagreements with what the market has priced in recently,” adding that while quarterly forecasts were important, decisions could be made at the meeting without them.
“What happens in the U.S. with regard to inflation rigidity of course raises further questions, but in my view, deinflation is here to stay,” he added. “Unless something dramatic happens,” he said, the ECB will move to cut rates in June.
Portugal's central bank governor, Mário Centeno, said the range of interest rate fluctuations was an “open question.”
“I prefer small moves over making big moves and then stopping,” he said, sending a clear message to investors that it would make them more conservative in the face of economic uncertainty. “But there's nothing to stop us from moving faster at first and then slowing down.”. “
