According to an internal ECB report, the European institution is considering lowering its key rates in June. Subject to a return of inflation to the 2% target.
The European Central Bank considered it “plausible” in April to start lowering its key rates in June if the data confirms the anticipated return of inflation to the 2% target by then, according to the minutes of its meeting published Friday.
“It was considered plausible that the Governing Council”, the body which decides the course of monetary policy within the ECB, “would be able to start easing its rates currently at their highest” during the June meeting,” the document states.
Depending on the outlook for inflation growth
This is on the condition that the battery of additional indicators unveiled by then confirm “the medium-term inflation outlook” which sees the progression of the index return to 2% in 2025, after 2.3% in 2024, according to projections by the monetary institution in March.
In April, the ECB decided to leave its rates unchanged, with the main rate on deposits remaining at 4.0%, the level reached last September. “A few members” around the council table pleaded for loosening the monetary screw from April, judging that the economic conditions were met without having to wait.
In total, a “broad consensus emerged” to “prudently wait for the next monetary policy meeting” which should provide more conviction on the return to normal of inflation, according to the document. If the next projections available in June “confirm that inflation is on track to fall below 2% in the second half of 2025, a rate cut will then be a fait accompli,” comments Carsten Brzeski, economist at ING.
In April, the ECB opened the way to a rate cut in June but refrained from sending signals on the evolution of rates beyond that. Uncertainty remains about disinflation in services and wage developments, about the geopolitical environment and about what the American Federal Reserve will decide on its rates. In this context which does not rule out a temporary return of inflation, “the ECB’s easing cycle will continue slowly, probably at a rate of 25 basis points per quarter”, according to Unicredit economists.
