FRANKFURT (Reuters) – Euro zone inflation is on track to ease back to 2% next year so European Central Bank policymakers concluded last month they will likely be in a position to cut interest rates in June, the account of their April meeting showed.
The ECB left interest rates unchanged at a record high last month but made clear that its next move will be a cut, most likely on June 6, provided wage and inflation data stay on their current, relatively benign path.
“It was seen as plausible that the Governing Council would be in a position to start easing monetary policy restriction at the June meeting if additional evidence received by then confirmed the medium-term inflation outlook embedded in the March projections,” the ECB said in the account of the April 10-11 meeting, released on Friday.
Speaking in the weeks since the April meeting, policymakers have confirmed that the June 6 cut is all but a done deal but the rate path beyond that is uncertain, given inflation volatility and a possible delay by the U.S. Federal Reserve to its own rate cuts.
Most, however, argue that June will not be a singular, one-off cut, even if the timing for further moves should not be predetermined in advance, to give policymakers flexibility in the case of abrupt changes in economic conditions.
“The risk of undershooting the inflation target and eventually having to pay too high a price in terms of declining activity was now seen as being at least as high as the risk of acting too early and overshooting the target over the medium term,” the ECB added.
Markets now see up to three rate cuts this year, or two beyond June, most likely in September and December, when the ECB also publishes new economic projections.
Euro zone inflation held steady at 2.4% last month and is expected to oscillate around this level for the rest of the year before easing back to the ECB’s 2% target in 2025.
While the ECB has publicly declared that policy was not dependent on Fed moves, decisions taken by the world’s biggest central bank impact financing conditions around the globe, limiting the ECB’s freedom since a widening rate differential weakens the euro and pushes up imported inflation.
(Reporting by Balazs Koranyi; Editing by Toby Chopra)
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