Possible before the summer break
Bundesbank boss Nagel does not rule out an interest rate cut soon
March 8, 2024, 10:52 a.m
Inflation rates are falling and companies are increasingly struggling with high financing costs. The European Central Bank could start cutting interest rates again in the next few months. However, Bundesbank boss Nagel warns against too much euphoria.
The first interest rate cut in the euro area is getting closer. “I’ll put it this way: The likelihood is increasing that we could possibly see an interest rate cut before the summer break,” said Bundesbank President Joachim Nagel in the “Table Today” podcast. The outlook has brightened, but in the end it will “clearly depend on the data again”.
The day before, the Council of the European Central Bank (ECB), of which Nagel is a member, left key interest rates unchanged despite a faster decline in inflation. After the deliberations in Frankfurt, ECB President Christine Lagarde had hinted at a possible change of course for the monetary policy meeting on June 6th: “We clearly need more evidence and more data, we will know a little more in April, we will know a lot more in June .”
In July 2022, the ECB ended the years of zero and negative interest rates in order to get inflation, which had temporarily reached record levels, under control. The central bank raised interest rates ten times in a row. The fact that loans therefore cost more can slow down demand and counteract high inflation rates. However, more expensive financing is also a burden for companies and private investors. In view of the weakening economy, there have recently been increasing calls to lower interest rates again. In addition, the inflation rate has recently been trending downwards.
Nagel warns that one should “not fall into euphoria too early that the issue of inflation has been put to an end.” At the same time, the Bundesbank President’s confidence is also growing: “The picture has certainly become more solid that we may soon be able to see other interest rates again. But now it is still time not to lose composure here too early and in terms of interest rate policy Keep the path like this for now.”