It should happen soon
Lagarde gives date for interest rate cuts
January 17, 2024, 11:05 a.m
The financial markets are still expecting the European Central Bank to begin turning its monetary policy around in the spring. But according to boss Christine Lagarde, a later date is likely.
The European Central Bank will probably cut key interest rates in the summer. This is what ECB boss Christine Lagarde said at the World Economic Forum in Davos. There she was asked whether there could be a majority in the Central Bank Council for such a step, as several members have indicated that this would be the case. “I would say it’s likely,” Lagarde replied.
On the financial markets, however, the first interest rate cut is expected in April at the latest. However, several central bankers had already indicated that monetary policy would probably only be relaxed later. “It doesn’t help our fight against inflation if expectations are far too high compared to what is likely to happen,” Lagarde said.
In the summer of 2022, the ECB abandoned its long-standing zero interest rate policy in order to get high inflation under control. In a short time, it increased the most important interest rate at which banks can obtain fresh money from the central bank to 4.5 percent. The mechanism of action: Higher interest rates make loans more expensive, which tends to slow down demand and thus counteract price increases.
The central bank sees its goal of price stability at 2 percent achieved. Inflation recently rose slightly to 2.9 percent in December, after being at 2.4 percent in November. However, the sharp increase in December is due to a statistical effect. Inflation has clearly moved away from the double-digit record levels reached in autumn 2022.
“Must be reserved”
From Lagarde’s point of view, the ECB is well on the way to bringing inflation in the euro area back to two percent. She is confident that the central bank will achieve this medium-term goal. But she will not yet declare victory against inflation. The ECB will receive data from this year’s collective bargaining agreements in the countries in late spring. “We’ll probably know a lot more in April, May,” she said. This data would give the ECB a good idea of how inflation will develop.
The background: High wage agreements can fuel inflation. This is the case when companies across the board continue to raise their sales prices due to higher personnel costs. According to Lagarde, it is not a foregone conclusion that interest rates will actually fall in the summer. “I have to be cautious because we are dependent on data,” said the ECB boss. “There is still a certain level of uncertainty.”