ECB poised to cut rates next week

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Austria lags behind Inflation should not be “stuck”

Philip Lane, the ECB’s chief economist, said the ECB is ready to cut interest rates next week. “If there are no major surprises, what we are seeing now is enough to remove the highest level of restrictions,” Lane said in an interview with the Financial Times. With restrictive interest rate levels, monetary authorities understand that interest rate levels will slow economic growth.

The data will help determine the pace of further monetary easing by the ECB in the coming months. ECB Vice President Luis de Guindos recently published a A 0.25 percentage point rate cutThe next rate decision is due on June 6. Another rate meeting will be held on July 18.

Austria lags behind

The ECB has kept the deposit rate that financial institutions receive when they park excess funds with the central bank at a record 4.0% since September 2023. The key rate at which banks receive new funds from the ECB is 4.5%. The euro regulator’s 2.0% inflation target is now within reach, with inflation at 2.4% in April.

Inflation should not be “stuck”

In Lane’s view, the ECB must ensure that the key interest rate remains within a restricted zone this year. “But within this restricted zone, we can lower it slightly,” the economist said, so the central bank can ensure that inflation does not exceed the target.

Bank of France Governor François Villeroy de Galhau, who is also a member of the ECB’s Monetary Policy Committee, wants to move on to a fast track second rate cut. In the stock market, investors have somewhat tempered expectations for rate cuts this year after new data showed that wage growth in the eurozone accelerated at the beginning of the year. Collective bargaining wages grew by 4.7% in the first quarter after rising by 4.5% in the last quarter of 2023. However, Lane believes that the direction is still correct: “The general direction of wages still points to weakness, which is crucial” Wage growth is considered one of the main drivers of inflation in the 20 countries.

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