Daily Sabah (Turkey)

ECB chief Lagarde warns of risk of cutting rates ‘too late’

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of the European Central Bank (ECB) cautioned yesterday against the dangers of acting “too late” on interest rate cuts, reaffirmin­g the likelihood that the initial decrease in borrowing costs would occur in June.

The ECB has kept its interest rates steady since October, following an unpreceden­ted series of hikes to tame redhot inflation.

With inflation steadily declining and the eurozone economy stuttering, attention has shifted to when the bloc’s central bank 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,” ECB President Christine Lagarde said at a conference in Frankfurt.

Therefore, the bank focused on “two important pieces of evidence” before deciding its next move: data on eurozone wage growth and its 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. Lagarde said the ECB expects to have a clearer picture of the outcome of wage agreements by the end of May.

Meanwhile, the ECB’s latest projection­s on economic growth and inflation will be unveiled in June. The data should give “more visibility on the strength” of the 20-nation club’s economies and confirm whether inflation remains on track to return to the 2% target in 2025.

Lagarde said policymake­rs will know “a lot more by June,” echoing her comments 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 dialing 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 U.S. Federal Reserve (Fed) was widely expected to leave its rates unchanged again later yesterday.

But observers will be listening for updates on how many cuts Fed policymake­rs see this year, with many anticipati­ng a first move in June.

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