Christine Lagarde, President of the European Central Bank (ECB), at an interest rate decision press conference in Frankfurt, Germany, on Thursday, March 7, 2024.
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The European Central Bank on Thursday held interest rates steady for the fifth straight meeting and gave its clearest signal yet for its next rate cut, despite uncertainty over the US Federal Reserve's next moves.
“If the Governing Council’s updated assessment of inflation expectations, core inflation dynamics and the strength of monetary policy transmission increases its confidence that inflation is approaching the target in a sustainable way, it would be appropriate to reduce the current level of monetary policy constraints,” he said in a statement.
In a press conference after the announcement, ECB President Christine Lagarde said this “important” new sentence was a “loud and clear signal” of the bank’s current sentiment.
The European Central Bank did not directly refer to easing monetary policy in its previous statements.
The central bank of the 20 countries that use the euro raised its key interest rate to a record 4% in September. This rate has been left unchanged in every pool since then.
Policymakers and economists have focused on June as the month in which interest rate cuts could begin, after the European Central Bank lowered its medium-term inflation forecasts. Since then, price increases in the euro zone have slowed more than expected in March.
June will also be the first month that policymakers will get a full set of data on first-quarter wage negotiations – an area of concern about potential inflationary effects.
The European Central Bank said on Thursday that the information received “broadly confirmed” its medium-term outlook, with inflation falling due to a decline in food and goods.
Market prices point to a 25 basis point cut in June, according to LSEG data.
“For some time now, the ECB has essentially committed to a June cut. There is a high barrier to not implementing that. But there is a wide range of possible outcomes in subsequent months, depending on further progress in the fight against inflation. “So far the data is moving dovish,” HSBC Asset Management said in a note.
The Fed's next steps
In the US, expectations for a Fed rate cut were significantly dampened in the summer due to higher-than-expected inflation data on Wednesday.
This has raised questions about how European central banks will respond to developments in the world's largest economy.
In response to a question about whether the US CPI numbers could influence the path of interest rate cuts by the European Central Bank, Lagarde said: “Obviously, anything that happens concerns us and will be included in due course in the forecasts that will be prepared and issued.” in June”. “The United States is a very large market, a very large economy, and a major financial sector as well.”
“We do not assume that what happens in the eurozone will be a mirror of what happens in the United States,” Lagarde said, stressing that economies, political systems and financial policies are all different.
She declined to specify whether the euro/US dollar exchange rate would affect the policy-making process.
But in comments reported by Reuters that preceded the ECB's decision, Per Jansson, deputy governor of the Riksbank, said on Thursday that if the Fed ruled out interest rate cuts in 2024, it could pose a “problem” for both the Riksbank and the bank. European Central. .
Jansson said in his speech that in the case of the Riksbank, this would be due to the weakness of the Swedish krona, which is fueling inflation.
European data continues to move toward the 2% inflation target, keeping the ECB on track for a June cut — but the pace and extent of additional cuts this year “may be more sensitive to US data and Fed policy,” Andrew Benito said. Eisler Capital's chief European economist told CNBC's Silvia Amaro ahead of the interest rate announcement.
