The European Central Bank (ECB) is nearing another interest rate reduction, with a meeting scheduled for Thursday, June 5, where a further easing of its monetary policy is expected.
If this occurs, the deposit acceptance rate is likely to be lowered for the eighth time, decreasing by 25 basis points to 2% from 4% since last June.
This change would result in lower monthly payments for those holding floating-rate euro loans, as the euribor rate would also decline.
While only a few members of the ECB Governing Council have commented publicly before Thursday’s meeting, most indications point to a rate cut.
“I believe we will cut rates one more time in June, followed by a pause at the July meeting,” stated Bank of Greece Governor Giannis Stournaras in an interview with Kathimerini.
Similar sentiments were echoed by the central bankers of France, François Villeroy de Gallo, Finland, Olli Ren, and Lithuania, Gediminas Šimkus.
Villeroy emphasized that ECB monetary policy has yet to normalize, suggesting this will be reflected in the upcoming meeting. Olli Ren remarked that if recent data and the new quarterly forecasts confirm ongoing low inflation (which stood at an annual rate of 2.2% in April) alongside sluggish economic growth, “the appropriate response in June would be to continue easing and cut interest rates.”
Šimkus indicated that inflation is likely to dip below the ECB’s 2% target due to the euro’s appreciation, asserting a strong possibility of a rate cut, with expectations for another reduction this year, potentially in July or beyond.
Conversely, two ECB council members opposed a rate cut: Austrian Robert Holzmann, known for his hawkish stance, and German Isabel Schnabel, who shares a similar position.
Holzmann stated, “there is no reason to cut interest rates in June and July,” arguing that further cuts likely wouldn’t impact growth, which is sluggish due to uncertainty rather than tight monetary policy. Schnabel suggested that the ECB should maintain interest rates, as global economic turmoil could trigger further inflationary pressures in the medium term.
Notably, these two hawks also opposed cutting rates at the April meeting but found themselves in the minority.
It appears clear that most ECB officials do not share concerns about rising inflation, believing it will decrease to 2% this year and potentially drop even further.
This prevailing view has been echoed by both ECB President Christine Lagarde and Chief Economist Philip Lane, who is responsible for shaping the central bank’s policies.
Lane expressed confidence that inflation will decrease, citing easing wage growth, and stated that as long as inflation continues to decline, interest rate cuts will persist. Notably, he suggested rates might fall as low as 1.5%, although a drop below that would require significant negative developments in growth, which are not currently anticipated.
Three key factors inspire confidence among ECB officials, analysts, and investors that eurozone inflation will remain on a downward trajectory. All three relate to the tariff policies of the U.S. President:
First, the euro’s appreciation against the dollar has reduced import costs, especially for raw materials priced in U.S. currency.
Second, the substantial decline in oil prices stemming from the global economic slowdown associated with the trade war.
Third, the reduced demand resulting from slowing growth.
Analysts predict that growth will decelerate in the eurozone, reflecting a global trend and particularly in the U.S., even if President Trump were to reverse his tariffs.
This outlook leads analysts to expect the ECB to cut rates in June and potentially lower them further to 1.75% this year, with Morgan Stanley forecasting a bottom at 1.5%.
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