ECB may cut rates ahead of the US

2024 could end with a 100 basis point reduction

Europe could cut interest rates before the US as the European economy is growing more slowly.

A total of four interest rate cuts is feasible in 2024, for a reduction of 100 basis points by year-end, according to European Central Bank (ECB) governing council member Yannis Stournaras.

“If inflation develops in line with our March forecast and if this trend continues until the end of the year, I believe that this year we will have reductions in key interest rates from the ECB,” Mr Stournaras said in an interview with the Proto Thema newspaper.

“Personally I think the reduction of interest rates by four times this year, by 25 basis points each time, is possible,” he said.

The views of Mr Stournaras, who falls on the dovish side of the ECB’s policy spectrum, have not been fully echoed so far by other governing council members.

“This is not yet a unified view,” said Mr Stournaras, who heads Greece’s central bank. 

“Some colleagues are more cautious and believe that interest rate cuts should be more moderate.” 

Recent inflation data from France and Italy has supported the argument that the central bank should start cutting rates sooner rather than later.

As the consumer price index dips closer to the ECB’s 2% target, most policymakers have backed president Christine Lagarde’s signal that the first interest-rate cut will come in June.

“The differences of opinion within the governing council of the ECB are much smaller than the image in the media,” Mr Stournaras told Proto Thema.

Another ECB council member, Austria’s Robert Holzmann, suggested Europe could lower its key interest rate before the US does.

“Europe could cut interest rates before the US,” he said, noting that the European economy was growing more slowly than its US counterpart.

When rate cuts would come was currently under discussion within the ECB’s governing council, Mr Holzmann said.

“From today’s perspective, I’d say: Interest rate cuts are likely to come. 

"When will depend largely on what wage and price developments look like by June,” he added.

The lower wage agreements in Europe were, the more scope there would be to reduce borrowing costs, Mr Holzmann said.

• Bloomberg and Reuters