Momentum builds for ECB to start cutting interest rates in June

Bundesbank head Joachim Nagel: Probability is increasing ECB could see an interest-rate cut before its summer break.  Picture: Britta Pedersen/POOL/ AFP

Momentum is building for the June interest-rate cut that European Central Bank president Christine Lagarde flagged on Thursday.

Speaking a day after the meeting, she stressed that additional data are needed before monetary easing can begin, and that “we will know a lot more in June”, policymakers echoed that prospect. A few, though, suggested a swifter move in April shouldn’t be completely ruled out.

All have an eye on eurozone wages, whose growth has been more stubborn of late than inflation. They spoke before data later on Friday showed a fourth-quarter slowdown in compensation per employee — a closely watched gauge — though Ms Lagarde had already said such a move was likely. 

The ECB might be able to lower borrowing costs before policymakers break for the summer, according to Bundesbank president Joachim Nagel.

“The probability is increasing that we could see an interest-rate cut before the summer break,” Mr Nagel told the Table.media podcast. “This will be data dependent, but the prospects have brightened.," he said.

The ECB has monetary policy decisions scheduled for April 11, June 6, and July 18. After that it doesn’t meet again until September 12.

The Bundesbank chief also said that the "last mile of monetary policy regularly is difficult, you have to stay calm, can’t become euphoric too early claiming you’ve overcome inflation”. 

The Governing Council will discuss lowering borrowing costs at its next two meetings, according to council member Olli Rehn.

“My own assessment is that based on the forecast that has now been received, the risks of premature interest rate cuts in terms of inflation control have substantially decreased — this is also affected by the lowering of the growth forecast,” Mr Rehn said in a blog post on Friday. “We will come back to the matter in the upcoming April and June meetings based on the latest information,” he said.

And Governing Council member Madis Muller said inflation in the eurozone is gradually approaching the 2% target, but officials still need more confidence that the trend will persist.

The ECB still needs “firmer confirmation that the trend of falling prices will continue before starting with interest-rate cuts,” the Estonian central banker said Friday. Policymakers are also closely monitoring the “vigorous increase in average wages in the euro area,” he said. 

• Bloomberg