The European Central Bank (ECB) is considering a rate cut for June, with policymakers including Joachim Nagel suggesting that it is increasingly likely. Nagel noted that while certain parts of the incoming inflation data still appear higher than desired, core inflation and service inflation remain high. Wage pressures are also still lingering in the euro area, with some momentum in Germany but overall on a downward trajectory. Nagel also highlighted the uncertainty of energy prices, particularly with the recent increase in oil prices compared to last year, in what he described as a volatile environment.
In addition to Nagel’s remarks, other ECB officials have also expressed their expectations for interest rates. Mario Centeno, governor of Portugal’s central bank, stated that it was time to change the monetary policy cycle due to slowing inflation. The ECB’s June interest rate decision is anticipated to be significant, with market expectations for a rate cut in June already clear. Markets are preparing for the first rate cut from the ECB to take place in June, given the recent developments in inflation.
After the ECB left interest rates unchanged for the fifth consecutive time, the central bank altered its language around potential rate cuts, indicating that a reduction would be appropriate if inflation fell back toward its 2% target in a sustained manner. Euro zone inflation decreased more than expected to 2.4% in March. ECB President Christine Lagarde mentioned that unless there are major shocks, the ECB is on track to cut interest rates soon, as the disinflation process is progressing as anticipated. Lagarde emphasized the need to build confidence in the disinflationary process.
Austrian central bank Governor Robert Holzmann also provided insights on the ECB’s decision-making process, noting that economic growth and inflation both play a role in monetary policy and interest rate decisions. Holzmann identified geopolitical tensions in the Middle East as the biggest risk to interest rate cuts, particularly in relation to energy prices. He mentioned that the results of spring wage negotiations and developments in the oil market are crucial in determining the timing of a rate cut. Holzmann did not commit fully to a June rate cut, indicating that the ECB is monitoring various factors before making a final decision.
