ECB ready to cut interest rates next week, says chief economist
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The news: The European Central Bank (ECB) is ready to start cutting interest rates next week, its chief economist Philip Lane told The Financial Times.
The numbers: Investors are betting that the central bank will cut its benchmark deposit rate by a quarter percentage point from its record high of 4% after inflation fell to 2.4% in April, which was close to the bank’s 2% target, the newspaper reported.
The context: In an interview with the FT ahead of the ECB’s 6 June meeting, Lane said “barring major surprise, at this point in time there is enough in what we see to remove the top level of restriction”.
Lane noted that inflation had fallen faster in the Eurozone than in the US because the region had been hit harder by the impact on energy as a result of Russia’s invasion of Ukraine.
However, he said that ECB policymakers needed to keep rates in restrictive territory this year to ensure that inflation kept easing.
What they said: “Things will be bumpy and gradual. The best way to frame the debate this year is that we still need to be restrictive all year long. But within the zone of restrictiveness we can move down somewhat,” Lane said.
“We don’t need the data to say normalisation is a lock. What we do need the data to say is: is it proportional, is it safe, within the restrictive zone to move down.”
When asked whether being the first major central bank to cut rates was risky or a source of pride Lane said: “I don’t think it is useful to think about it in relation to other central banks”.
“... Famously, central bankers aspire to be as boring as possible and I would hope central bankers aspire to have as little ego as possible but it has been important to reassure people that we will make sure inflation comes back to 2% in a timely manner,” he said.
The sources: Financial Times, ECB
