‘Fashion’ within the ECB for the interest rate reduction schedule

The opinion of the members of the Board of Directors of the European Central Bank ( ) on their reduction in June in the wake of Christine Lagarde’s press conference on Thursday (7.3.2024). The President of the ECB stressed that it was necessary to announce the appropriate data first before the interest rate reduction process began from June onwards. Although she mentioned unanimity within the board meeting, those who propose that a faster move in April should not be completely excluded. What central bankers support More specifically, Bloomberg records the views of members of the Governing Council of the ECB. The Bundesbank’s Joachim Nagel said about the possibility that there would be a reduction in interest rates before the summer break that it would “depend on data, but prospects have brightened” while welcoming the fact that markets have aligned more with June as the right time to start reducing the cost of borrowing. From his point of view, Francois Villeroy de Galhau, from the central bank of France, stressed that “there seems to be a very likely to be a first interest rate reduction in spring” while clarifying that “the spring extends from April to June 21”, adding that “now we have increasing confidence that inflation will return to 2% from now until next year”. Finnish central banker Olli Rehn said: “My estimate is that based on the forecasts received, the risks of the prospect of interest rate reductions in inflation control have been significantly reduced – this is also affected by the reduction in growth forecast. We will return to the subject at the next April and June meetings on the basis of the latest information.” He made sure to explain that “there were also voices in the debate that the ECB could not reduce interest rates before the Fed, describing these rumours as very exaggerated as “the ECB is not the 13th Federal District of the Fed”. Although inflation in the eurozone is gradually approaching the 2% target, officials still need more confidence that this trend will continue, Madis Muller from Estonia supports in a different direction. The ECB still needs “a firmer confirmation that the downward trend will continue before interest rates are lowered,” she noted, adding that policy makers are also closely monitoring the “strong increase in average wages in the Eurozone”, stressing that wage increases near 5% would make it difficult to slow inflation. With the most cautious attitude, Gediminas Simkus of the central bank of Lithuania: “June is the possible month to lower interest rates,” he said. “I go to every meeting with an open mind. I cannot rule out the possibility of a cut in April, but the possibility is small.” There could be many cuts this year, but we cannot say today where the relaxation process will end, it has been completed. “We are not in a hurry. I do not understand why the cuts should be greater than 25 basis points or why they could not coincide with the announcements of forecasts.” Remaining in the Baltic, Latvian Martins Kazaks described the first cut as important, because this will show that the ECB is changing direction, but in his view, “this does not mean that we are forced or obliged to do every meeting,” he explained. “The optional option is always there,” he added. “We don’t put anything on autopilot” while filling out that “the increase in wages seems to be somewhat reduced”. The ECB will avoid the “automatic pilot” at interest rates as soon as reductions begin, Latvian stressed. Less clear was Robert Holzmann from the central bank of Austria as he stated that “one of yesterday’s decisions was for no change, but a change may be prepared.” Finally, Bostjan Vasile from Slovenia pointed out that “we estimate that the current level of interest rates, if maintained for some time, will contribute significantly to the timely return of inflation to the target level.” At the same time, he explained that “our further steps will continue to depend on the current situation, namely economic and financial data, the movement of the core of inflation and the effectiveness of our measures.”