Inflation is falling
ECB director hopes for first interest rate cut in June
22.05.2024, 23:47
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The key interest rate has been 4.5 percent since September. So far, the European Central Bank has been reluctant to announce reductions. According to director Isabel Schnabel, that could change soon. She believes a first interest rate cut is likely next month.
According to ECB director Isabel Schnabel, the European Central Bank (ECB) is heading for a first interest rate cut in June, unless there are any surprises before then. “If the inflation forecasts and the new data confirm our previous view, then an interest rate cut in June is likely,” said Schnabel in the television program “mex. das marktmagazin” on Hessischer Rundfunk (hr). “We are now seeing a slight economic recovery in the eurozone, while at the same time inflation is still falling.”
In this respect, one can have some hope that the ECB will succeed in returning to price stability without causing a recession. The ECB is aiming for 2.0 percent inflation as the ideal value for the economy of the 20-nation community. At 2.4 percent in April, the rate was recently not far off. In recent weeks, many ECB monetary authorities had already expressed the expectation that interest rates could be reduced again for the first time at the meeting on June 6th.
The ECB has kept the deposit rate – which is the relevant interest rate on the financial market – at 4.00 percent since September 2023. This is the highest level since the start of the monetary union in 1999. From Schnabel’s point of view, the emerging interest rate turnaround has already had an impact on loan interest rates. If the interest rate decision is now made as expected, then nothing should actually change because it is already included in the interest rates, said the member of the ECB’s six-person management team.
All market players expect interest rate cuts
“If you take out a property loan today, the interest rates are already lower than they were a few months ago,” she explained. “Because all market players expect interest rates to be cut in June and possibly afterwards.” The financial market is currently expecting up to three interest rate cuts by the ECB by the end of the year. Schnabel also urged caution.
“You should definitely be careful and watch the data closely in order to recognize in good time if inflation is not developing as we now expect,” said Schnabel in the ARD magazine “Plusminus”. However, the risk of wage-price spirals is lower today than in the 1970s. “In the current situation, we see that wages have risen sharply, but that wage growth is gradually slowing down.”