ECB may wait out the summer before another rate cut, governing members suggest

ECB president Christine Lagarde: September is a key month for the decision to cut interest rates as inflation drops. Picture: AP 

The European Central Bank’s (ECB) September policy meeting will be key for officials to determine whether to cut interest rates again, according to governing council member Peter Kazimir.

The Slovak central bank chief implicitly ruled out July, saying that he and his colleagues will need more data and time to assess the price risks to the economy.

“We can afford to enjoy the summer without hurrying into the decision. We don’t need to rush and there’s no reason to rush,” he said. “September will be a pivotal month,” he said, referencing new forecasts due then.

Another governing council member, Joachim Nagel, echoed Mr Kazimir and said the ECB may not cut interest rates again for a while as it watches to see how quickly inflation recedes to its 2% target, according to Mr Nagel. Policymakers must remain cautious amid still-high uncertainty around the economy and the evolution of price pressures, Mr Nagel said in a speech. He also heads the Bundesbank.

“I don’t see us on a mountain top from which we will inevitably come down,” Mr Nagel said. “Rather, I see us on a ridge where we still have to find the right point for a further descent.” The comments add to a series of remarks cautioning against any quick follow-up to last week’s quarter-point reduction in borrowing costs.

Central Bank of Ireland governor Gabriel Makhlouf went as far as suggesting that the ECB might not carry on with further loosening policy at all.

Meanwhile, investor morale in the eurozone rose for the eighth consecutive month in June, but economic recovery is proceeding with difficulty, a survey showed on Monday.

The index on expectations saw a rise, increasing from 7.8 in May to 10.0 in June, “providing some encouragement that the trend may continue in the coming weeks”, Sentix said.

The barometer plunged into negative territory in the wake of Russia’s invasion of Ukraine. The sluggish improvement since then “is certainly one of the main arguments for the ECB to be able to cut interest rates further”, Sentix said, and that its inflation barometer also indicates an unfavourable inflation environment.

Bloomberg and Reuters