Closing post
Time for a recap…
The European Central Bank (ECB) has signalled it could start cutting interest rates as soon as this summer, following a sharp fall in inflation across the eurozone.
The ECB left rates on hold today, but president Christine Lagarde revealed a few policymakers had been ready to cut today. The majority, though, chose to leave rates on hold while the bank gathered more evidence that inflationary pressures are easing.
Lagarde told reporters:
“Without being triumphant, or celebrating anything yet, what we are observing is a decline of inflation, a disinflationary process that is in progress.”
Progress on productivity, falling wage growth and an easing of company profits could help the ECB to start cutting rates.
We’ve just taken our latest monetary policy decisions, determining what’s needed to return inflation to our 2% goal in a timely manner.
— European Central Bank (@ecb) April 11, 2024
Tune in to #TheECBPodcast to hear President Christine @Lagarde present the decisions in our press conference https://t.co/0zg0L91LZ6
Financial markets have been reassessing the prospects of rate cuts this year, after US inflation rose faster than expected yesterday.
The City now expects just two cuts to UK interest rates this year, and a similar reduction in the US.
The Bank of England is now expected to move before the Federal Reserve. But, Bank of England policymaker Megan Greene warned that investors had underestimated the risk that inflation would remain high for longer in Britain than in other advanced economies.
She wrote in the Financial Times today:
Momentum in the markets has been towards pricing in later rate cuts by the Fed as economic growth remains robust. In my view, rate cuts in the UK should still be a way off as well.
The head of the International Monetary Fund is urging the world’s leading central banks must resist growing pressure for early interest rate cuts amid concerns over stubbornly high inflation on both sides of the Atlantic.
Kristalina Georgieva said high inflation across advanced economies was “not fully defeated” and could require a longer wait before reducing borrowing costs.
Updated
At today’s press conference, President Lagarde sought to strike a balanced tone, explains Max Stainton, senior global macro strategist at Fidelity International:
She highlighted that growth risks remained tilted to the downside, inflation risks were balanced, and labour market tightness was declining.
These factors, combined with profits and wages growing less strongly than anticipated and more timely indicators of wages also showing further moderation are clearly giving her and the Council greater confidence that they are on the brink of the cutting cycle.
Nevertheless, President Lagarde didn’t entirely remove the ECB’s data dependence, making it clear that the June data on profits and wages, as well as updated staff projections would be the critical final inputs into the Council’s decision making.
Updated
