The European Central Bank could ease policy restrictions at its next meeting in June, depending on data that confirms policymakers' confidence in curbing inflation. ECB President Christine Lagarde emphasized the ECB's independence from the Fed.
advertisementJune could mark the start of a cycle of rate cuts in the euro area, depending on whether upcoming inflation data further boost confidence in European Central Bank (ECB) policymakers.
At a press conference after the ECB's policy meeting in April, Christine Lagarde laid the groundwork for a potential interest rate cut in June, stressing the importance of continuing to rely on data.
“If our latest assessment of the inflation outlook, underlying inflation dynamics, and the strength of monetary policy spillovers provide further confidence that inflation is sustainably converging on target, we will lower current levels. “It would be appropriate to tighten monetary policy restrictions,” Lagarde said.
Dissidents participate in ECB's April board meeting.Lagarde recognizes inflation fluctuations
The ECB kept its key interest rates unchanged at its April meeting, in line with market expectations. However, several committee members had already voted in favor of a rate cut at this meeting, so the decision was not unanimous.
“A small number of members had enough confidence based on the limited data they received in April, just a few members, and they agreed to come together to a consensus,” Lagarde said. .
Lagarde pointed out that the ECB's key interest rate greatly aids the disinflation process. Eurostat's preliminary estimates show that inflation has fallen to 2.4% in March from an annual rate of 2.6% in February, with most underlying inflation indicators falling further and price pressures gradually easing. suggests that it is.
However, Lagarde explained that “the decline in inflation that we have seen so far is not linear and will be volatile in the coming months.” He predicted that the decline to the target would be delayed until next year due to slower growth in labor costs, the impact of restrictive financial policies, and the diminishing impact of the energy crisis and pandemic.
Service sector inflation has remained high at around 4% over the past five months, while domestic inflation, driven primarily by services, has been at 4.5% over the past three months. Nevertheless, Lagarde reiterated that the ECB takes into account all inflation factors in its assessment.
“It is inevitable that some items and some segments will be at a higher level, and we will look at all of them and make a judgment and based on that assessment we will decide whether we have enough confidence. ” said the president.
Asked whether recent higher-than-expected inflation in the United States had changed the ECB's stance, Ms. Lagarde affirmed the ECB's autonomy and emphasized the economic differences between the United States and the euro area, saying, “We are It is not dependent on it.''
He dismissed concerns that U.S. inflationary pressures would have a major impact on the ECB's policy choices and refuted the idea that the ECB's actions would simply follow the Fed's lead.
In the end, Lagarde remained neutral and postponed a decision until June when “more information” would be available. He said that while “a small number of members” were prepared to cut rates in April, the consensus among members was to operate from a meeting to a meeting without making any prior commitments to any interest rate path.
Market expectations and the way forward
The market fully expected a rate cut in June and is already pricing in an 85 basis point rate cut by the ECB in 2024. The expected pace of ECB rate cuts is faster and more aggressive than that of the Fed, which expects to cut rates by less than 50 basis points. Earn points by December.
However, the main uncertainties surrounding the scope and speed of the expected rate cut cycle in the second half of this year appear to be primarily related to the recent rise in energy prices, particularly oil, and the potential for escalating tensions in the Middle East. is. east.
“When it comes to oil prices, it's obviously a very important item. We've learned from recent shocks that energy costs play an important role, and we're paying very close attention to these developments,” Lagarde said. concluded.
