THE case for a European Central Bank interest rate cut in June is getting stronger as services inflation is finally starting to ease, ECB chief economist Philip Lane told Spanish newspaper El Confidencial on Monday.
The ECB has all but promised a rate cut on June 6, provided incoming data strengthen policymakers’ belief that inflation will head back to its 2 per cent target by the middle of next year.
“Both the April flash estimate for euro area inflation and the first quarter GDP number that came out improve my confidence that inflation should return to target in a timely manner,” Lane told the newspaper in an interview.
“So, as of today, my personal confidence level has improved compared with our April meeting,” Lane said, adding that more crucial data is still to be published in the weeks ahead.
Investors also seem to think that a cut in June is all but a done deal, but doubts about subsequent moves have increased in recent weeks after the US Federal Reserve signalled that its own policy easing could be delayed.
While the ECB insists it is not dependent on the Fed, a widening interest rate gap between the world’s biggest central banks would weaken the euro and boost European inflation, likely limiting the ECB’s appetite for going it alone.
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Lane said that April inflation data finally showed progress on services prices but the bank would continue to focus on services to make sure it did not derail disinflation later on.
Overall inflation stood at 2.4 per cent last month and the ECB expects it to fluctuate around this level for most of this year, before falling again in 2025. REUTERS
