The ECB** is increasingly saying that further evidence is needed before it can start cutting interest rates that inflation is coming back down towards its 2% target.
Several policymakers who spoke on Friday stressed the need to wait for more data in the coming months before starting to ease monetary policy, particularly focusing on wage data, which eased slightly in the fourth quarter but remained elevated.
The ECB's stance is usually more biased.
1. Bank of Greece Governor Yannis Stournaras said that this kind of information will only slowly penetrate and may not be in time for the April meeting.
The latest deceleration in wage growth has led us to believe that we are on track," he said in an interview, "but we won't have enough information to decide on a rate cut before the end of the second quarter – so the timing is June." ”
As inflation recedes and the Eurozone economy weakens, the debate over when the ECB's historic rate hike campaign will turn has intensified. Some policymakers said they were prepared to act in April, but many said they preferred to wait and make sure inflation doesn't.
Given the stronger-than-expected slowdown in price growth, investors have long speculated that the ECB would opt for the former. However, the market has recently scaled back bets on the hawkish stance that it is more likely to cut interest rates for the first time in June.
ECB President Christine Lagarde, speaking in Ghent, Belgium, said that the Q4 payroll data was clearly encouraging, but that the Q1 negotiated pay would be key in determining interest rates.
The consultations to be completed in the first quarter of 2024 will involve many industries and employees," Lagarde said in the Eurozone** and (537,0.00,0.00%), telling reporters at the meeting, "I think these figures will be very important for us to assess the future to build confidence, especially if they continue to be encouraging." ”
While Eurozone labour wages data is crucial to the inflation outlook, there is a long lag in the release of the data. This complicates the decision of the Governing Council, as they must also consider the risk of constraining the weak economy for too long.
But many** said they were ready to wait for the necessary information to arrive. Bundesbank President Joachim Nagel said the ECB must reject an early rate cut.
We won't receive more detailed information until the second quarter showing how the domestic pressures are evolving," he said in Frankfurt, "and first we need clearer evidence that we will soon achieve our targets in a credible way." Then we can think about a rate cut. ”
Similarly, Estonian Central Bank Governor Madis Muller warned against premature cuts in borrowing costs, saying that "it is prudent to be patient with the first rate cut." ”
Wage growth remains above the level we can ensure is consistent with the inflation target," he said in an interview, adding that "it's more inclined to wait for the Q1 data to be able to say with confidence that all the indicators point to a lower rate cut." ”
These data will not be released until the end of April, later than the ECB's monetary policy meeting at the beginning of the month, which will turn the focus to June.
This coincides with the timeline set by the head of the Central Bank of Lithuania, Gediminas Simkus. In an interview, he said that "positive developments on wages and inflation" could "put us in less restrictive territory in the summer of 2024." ”
However, the governor of the Bank of Portugal, Mario Centeno, stressed that the ECB must be prepared to consider a rate cut next month if the data calls for lower borrowing costs, even if it is only a low-probability event.
March is the time when we have the most new data in front of us, and some of the data may tell us to talk about a rate cut as early as March," he said in an interview, "I'm not saying it's very likely, but we have to be open-minded." ”
This article is sourced from: the financial world.