Will ECB cut rates next week? Insiders nearly promise cuts from June 6.


The European Central Bank has hinted multiple times recently, almost explicitly promising a rate cut in June.

Philip Lane of the European Central Bank stated that the ECB is prepared to cut interest rates starting next week, the Financial Times reported on Monday. This announcement comes ahead of the ECB's policy meeting on June 6th.

In an interview with the Financial Times, Lane said, “Unless there are major surprises, the current situation justifies removing the highest level of restrictions.”

Lane noted that ECB policymakers need to keep interest rates in a restrictive zone this year to ensure that inflation continues to decline and to avoid inflation exceeding the bank's target. This “will be very tricky and may require considerable effort to achieve.”

He said that the speed of lowering borrowing costs in the euro area this year will be determined by assessing the data to ascertain whether it is safe and appropriate.

The ECB has almost pledged to cut rates on June 6th, but after stronger-than-expected wage data, some analysts have lowered their expectations for further rate cuts.

In the first quarter of 2024, negotiated wage growth in the euro area picked up slightly, making the case for cautious rate cuts from record highs more compelling.

However, Lane stated, “The overall direction of wage growth still points to a slowdown, which is crucial.”

“The best way to discuss this year is that we need to maintain restrictive policy throughout the year,” Lane added, “But within the restrictive zone, we can slightly lower rates.”



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Interest rate cut

A rate cut refers to the central bank adjusting the interest rate level so that it is lower than before, as a form of monetary policy. It is a means by which the central bank affects the supply and demand relationship in the money market, money creation, and the level of interest rates by changing the level of interest rates. Rate cuts are usually used to counter inflation, stimulate economic growth, or alleviate economic downturn pressures.

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