ECB official talks down prospects for summer of rate cuts

ECB executive board member Isabel Schnabel warned against back-to-back interest-rate cuts in June and July.

European Central Bank executive board member Isabel Schnabel warned against back-to-back interest-rate cuts in June and July.

“Based on current data, a rate cut in July does not seem warranted,” she told the Nikkei newspaper. 

“We should look very carefully at the data because there is a risk of easing prematurely,” she said. 

As the eurozone inflation nears the 2% target, ECB officials are in agreement over an initial reduction in the deposit rate next month but have been wary of discussing what will happen beyond. 

Ms Schnabel’s remarks are the clearest signal yet that policymakers still concerned by rapid wage growth and geopolitical threats will take a breather at their following meeting.

Money markets pared rate-cut bets slightly. 

But traders still hold a strong conviction for quarter-point reductions in June, September, and December, which would lower the deposit to 3.25% from the current high of 4%.

While Ms Schnabel said June’s planned move “may be appropriate” she urged a “cautious approach” in her interview with Nikkei. 

“And we should give ourselves sufficient time to see what is happening,” she said. 

The German official also said that given “very high uncertainty” and “with inflation risks still being tilted to the upside” it is “too early to say what is going to happen and we cannot pre-commit to any particular rate path.”

 Those sentiments were also echoed later on Friday by ECB vice president Luis de Guindos.

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“We have been very clear, for June we have been very transparent,” he said in Madrid. 

“And subsequently we have also been very transparent and we have said that we are going to be dependent on the data and how this data arrives at our meetings.” 

Governing Council member Bostjan Vasle, too, said that “the time will soon come when we can begin to reduce the restrictiveness of our monetary policy”. 

Speaking in a separate interview with Austria’s News magazine, Robert Holzmann — one of the ECB’s top hawks — warned that officials must ensure that they don’t ease up too soon on inflation.

If this happens, “there’s the danger that it accelerates again”, he said. 

“Getting a grip on inflation again in that situation would be extremely difficult,” he said.

His Latvian counterpart is more optimistic, with Martins Kazaks telling a conference in Portoroz, Slovenia, that “we are very clearly seeing a very nice disinflationary process, the second-round effects have not really kicked in because of the monetary policy and we are on the path to 2%”. 

• Bloomberg