The ECB’s chief economist, Philip Lane, believes that the institution has been successful in managing the eurozone’s monetary policy, which has contributed to a “timely decline” in inflation, which makes a downward movement in interest rates already possible at the next meeting on June 6. .
Investors are betting that the European Central Bank will cut its benchmark interest rate by a quarter of a percentage point (compared to an all-time high of 4%) at next week’s meeting, something former Irish central bank governor Philippe has confirmed. Lin in an interview with Financial Times (foot).
“Unless there are big surprises, we believe at this point there are conditions to remove the maximum restrictions,” Lin said.
According to the Financial Times, while central banks in Switzerland, Sweden, the Czech Republic and Hungary have already started cutting interest rates, other banks, such as the US Federal Reserve (Fed) or the Bank of England, are not expected to cut interest rates. Immediately, some, such as Japan, are likely to continue rising.
The European Central Bank, which was heavily criticized for being one of the last to start the move to raise interest rates while prices rose as a result of turmoil caused by the pandemic crisis and Russian aggression against Ukraine, now sees inflation stabilizing in Europe. Eurozone at 2.4% in April, conditions for some easing in interest rates.
“For the first step, [começar a reduzir as taxas] It is a sign that monetary policy is working, ensuring that inflation falls in a timely manner. “In this sense, I think we succeeded,” said the economist, who is responsible for writing and presenting the proposal to decide on interest rates before it is decided by the 26 members of the Governing Council.
The official emphasized that if the central bank had not kept interest rates within the restricted zone this year, to ensure that inflation slowed to 2% (as set by the ECB’s mandate), this would have been “extremely problematic and probably very painful to eliminate.” “.
Euro zone inflation fell from more than ten percent at its peak in 2022 to its lowest level in nearly three years at 2.4% in April, but is expected to rise to 2.5% when May data is released this week.
Lin stressed that the pace at which the cost of loans will decline in the coming months will be “gradual” and depends on “evaluating the data” to determine “whether it is proportionate, whether it is safe” to decline. “The best way to frame this year’s discussion is that we still need to restrict all year long,” he added. “But inside the restricted area, we can go down a little bit“Complete.
The economist also stated that the “still significant pressure on costs”, resulting from rapid wage growth, which leads to higher prices for services, means that the ECB will have to maintain a restrictive policy until 2025.
“Next year, with inflation clearly close to the target, ensuring interest rates fall to a level consistent with that target will be a different discussion,” he added.
The former central bank governor explained that one of the main reasons behind the faster inflation rate in the Eurozone compared to the United States is the fact that the region was hit hard by the energy shock caused by the Russian invasion of Ukraine. However, the crisis was mitigated through measures taken at the level of various Member States and through the normalization of the functioning of energy markets, especially natural gas.
Philip Lane also eased concerns about the impact of declines in the euro zone on euro stability. According to the Financial Times, some analysts argue that if the ECB deviates from the Fed and cuts interest rates more aggressively, this could lead to a devaluation of the euro and increased inflation, which would increase the prices of imports into the European space.
The ECB’s chief economist confirmed that the central bank would take into account any “significant” movement in the exchange rate, although he highlighted that “there have been very few movements” in this direction.
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