Lagarde warns of risk of cutting rates ‘too late’

FRANKFURT: European Central Bank president Christine Lagarde warned Wednesday of the risk of acting “too late” on interest rate cuts, reaffirming the likelihood that the first reduction in borrowing costs will come in June.

The ECB has kept its interest rates steady since October, following an unprecedented series of hikes to tame red-hot inflation. With inflation steadily declining and the eurozone economy stuttering, attention has shifted to when the ECB will start easing its monetary policy. “We cannot wait until we have all the relevant information. To do so could risk being too late in adjusting policy,” Lagarde said at a conference in Frankfurt.

The ECB was therefore focusing on “two important pieces of evidence” before deciding its next move: data on eurozone wage growth and the bank’s own economic forecasts. Many wage negotiations in large sectors are still taking place, as unions across Europe push for salary hikes to compensate for higher living costs. The ECB expects to have a clearer picture on the outcome

of wage agreements at the end of May, Lagarde said. The ECB’s latest projections on economic growth and inflation meanwhile will be unveiled in June. The data should give “more visibility on the strength” of the economies of the 20-nation club as well as confirming whether inflation remains on track to return to the two-percent target in 2025. Policymakers will know “a lot more by June”, Lagarde said, echoing comments she made after the latest ECB meeting earlier this month.

If the data confirms the disinflationary process is continuing, “we will be able to move into the dialling back phase of our policy cycle and make policy less restrictive”, Lagarde said.

But she cautioned that there was no guarantee that a first rate reduction would automatically be followed by further cuts. “Our decisions will have to remain data dependent and meeting-by-meeting, responding to new information as it comes in,” she said. “This implies that, even after the first rate cut, we cannot pre-commit to a particular rate path.”

Across the Atlantic, the US Federal Reserve was widely expected leave its rates unchanged again later on Wednesday. But observers will be listening for updates on how many cuts Fed policymakers see this year, with many anticipating a first move in June.