ECB maintains rates at record high but signals cuts may come in June

• Published date: 12 April 2024
• Author: JOE BRENNAN
• Publication title: Irish Times (Dublin, Ireland)

The European Central Bank (ECB) kept its key deposit rate at a record high of 4 per cent yesterday, but laid a path for a cut in June

The bank’s governing council, led by president Christine Lagarde, noted that inflation is continuing to ease, led by lower food and goods prices, even if service prices remain high.

It said that if confidence increased that inflation is converging on its 2 per cent target “in a sustained manner, it would be appropriate to reduce the current level of monetary policy restriction”. It is the clearest official signal yet from the governing council that rate cuts are likely on the way, even if many individual members, including Ms Lagarde, had previously pointed towards a potential June cut.

Ms Lagarde told a press conference that the 26-member governing council will have access to “a lot more data” and a fresh set of inflation projections from ECB staff by the time it sits down for its next monetary policy meeting on June 6th.

She added that “a few members” had pressed for a rate cut this month, but “agreed to rally to the consensus of a very, very large majority” to keep rates on hold.

“The ECB couldn’t have been clearer: barring any big surprises in the data, a June rate cut seems highly likely,” said Simon Wells, chief European economist with HSBC.

The ECB currently expects that euro zone inflation, which was running at 2.4 per cent last month, will reach its target by the middle of next year. Still, Ms Lagarde said “there will be bumps on the road”.

“We are not going to wait until everything goes back to 2 per cent to make the decisions that will be necessary,” she said.

The ECB hiked its deposit rate from minus 0.5 per cent to 4 per cent in the 15 months to last September as it belatedly joined other big central banks in tightening lending conditions in a fight against inflation.

Investors in short-term debt markets – or money markets – are pricing in an ECB cut for June and betting that the deposit rate will fall by 0.77 of a percentage point by the end of 2024, equating to slightly more than three quarter-point cuts.

“We think the ECB can continue to prepare the market for a rate cut at its June meeting,”...