ECB’s Lagarde signals June cut, says future rate path uncertain

ECB’s Lagarde signals June cut, says future rate path uncertain

Christine Lagarde, President of the European Central Bank, at the “ECB and its observers” conference on March 20, 2024 in Frankfurt am Main.

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European Central Bank chief Christine Lagarde reiterated on Wednesday that policymakers will consider cutting interest rates in June, but outlined an uncertain path beyond that.

“By June we will have new forecasts that will confirm whether the inflation path we predicted in our March forecast remains valid,” Lagarde said in a speech in Frankfurt.

The June meeting was hailed as a potential turning point by many members of the ECB’s Governing Council – which votes on interest rate moves – as it will be the first meeting for which data from spring wage negotiations will be available. The ECB is wary of the possible knock-on effects of inflation through rising salaries.

Lagarde said data available through June will also provide more insight into the evolution of underlying inflation and the direction of the labor market.

“If these data show a sufficient level of consistency between the evolution of underlying inflation and our forecasts, and assuming that transmission remains strong, we will be able to move into the retracement phase of our policy cycle and make policy less restrictive “to create,” she said.

“But after that, domestic price pressures will still be visible. For example, we expect service sector inflation to remain elevated for most of the year. So there will come a time when we need to continually confirm the incoming data supports our inflation outlook.”

Overall, Lagarde expressed extremely positive statements about inflation developments despite the easing geopolitical uncertainty and ongoing domestic price pressure. Euro zone inflation cooled to 2.6% in February, although services figures remained more stable at 3.9%.

“Unlike previous phases of our policy cycle, there are reasons to believe that the expected disinflationary path will continue,” Lagarde said, emphasizing confidence in her staff’s latest macroeconomic forecasts, which show inflation averaging 2.3% in the month Year 2024 and 2% forecast. in 2025 and 1.9% in 2026.

The euro zone central bank has kept interest rates stable since they hit a record high in September. Until its meeting in March, the bank said it was too early to discuss when to start cutting rates. The next meeting will take place in April and then June.

The market’s attention now turns to how many interest rate cuts the ECB is expected to make later this year. Money markets suggest three rate cuts will take place by December, along with a possible fourth, according to Reuters data.

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2024-03-20 10:44:53