Right time for ECB to cut interest rates, say top policymakers

The European Central Bank skyscraper in  Frankfurt. ECB officials scheduled to speak in the coming week include chief economist Philip Lane and the Dutch, French, and Italian governors.

European Central Bank (ECB) executive board member Piero Cipollone said the time is right for an interest rate cut in June, echoing comments a day earlier from governing council member Fabio Panetta.

“I expect a first move to reduce rates at the next ECB meeting, then we will have to discuss, we will see, we will be data-dependent,” Mr Cipollone said on Sunday at the Economy Festival event arranged by Il Sole 24 Ore in Trento, Italy.

“Recent data goes in this direction and strengthens our certainty that we will be able to reduce the restrictive stance of our monetary policy,” Mr Cipollone said.

A lowering of borrowing costs by the ECB in June has been widely telegraphed. 

Most officials have stayed silent on what happens after that, although hawkish policymakers, including Joachim Nagel and Isabel Schnabel, have already said they do not want another move in July.

Mr Cipollone’s remarks echoed the Bank of Italy governor’s comments, made on Saturday, on the sidelines of the Group of Seven finance ministers’ and central bankers’ meeting in Stresa, when Mr Panetta said that there are conditions for a change in monetary policy at the June 6 meeting.

“We have our mantra of deciding meeting by meeting, but I do believe that the consensus has widened and that even those who had more doubts are coming round” to agreement on a reduction, Mr Panetta said.

Asked whether G7 officials discussed the state of lenders at the current juncture, Mr Panetta said that “what we see today, in Italy and Europe, is a healthy banking system with good capitalisation”.

In the eurozone, inflation probably accelerated in May to 2.5%, according to economists.

An underlying gauge is anticipated to have stopped weakening for the first time since July, holding at 2.7%.

ECB officials scheduled to speak in the coming week include chief economist Philip Lane and the Dutch, French, and Italian governors.

In tune with the wider eurozone data, national releases that start with Germany’s on Wednesday are expected to have gone the wrong way in three of the region’s four biggest economies. Only Italy is seen to be experiencing slower price growth.

Such outcomes impede progress toward the ECB’s 2% target, but officials’ consistent signals for a quarter-point rate reduction on June 6 make it unlikely that one month of data will derail them.

Even so, some policymakers are arguing against any rush to ease further.

“The probability is increasing that in 13 days we will see the first rate cut,” Bundesbank president Joachim Nagel, a policy hawk, said on Friday.

“If there’s a rate cut in June, we have to wait, and I believe we have to wait till maybe September.”

In the US, the Federal Reserve’s first-line inflation gauge is about to show some modest relief from stubborn price pressures, corroborating central bankers’ prudence about the timing of interest-rate cuts.

Economists expect the personal-consumption expenditures price index, minus food and energy — due on Friday — to rise 0.2% in April. 

That would mark the smallest advance so far this year for the measure, which provides a better snapshot of underlying inflation.

The overall price index probably climbed 0.3% for a third month, according to median projection in a survey.

Increases this year stand in contrast to relatively flat readings in the final three months of 2023, underscoring uneven progress for the Fed in its inflation fight.

Fed chair Jerome Powell and his colleagues have stressed the need for more evidence that inflation is on a sustained path to their 2% goal, before cutting the benchmark interest rate, which has been at a two-decade high since July.

Officials, earlier this month, coalesced around a desire to hold interest rates higher for longer and “many” questioned whether policy was restrictive enough to bring inflation down to their target, according to minutes of their last meeting.

The latest inflation numbers will be accompanied by personal spending and income figures. While demand grew at a solid pace in the first quarter, the data will inform on services spending after flat retail sales in April.

• Bloomberg