ECB must not rush into next rate cut, Vasle says
2024.07.03 10:32
SINTRA, Portugal (Reuters) – A host of risks could still derail euro zone disinflation, so the European Central Bank should not rush into its next interest rate cut, Slovenia’s central bank governor Bostjan Vasle said on Wednesday.
The ECB lowered rates in June and signalled more easing in the coming months but made no commitment about the timing of the next move, leaving markets guessing and policymakers to debate the issue.
Vasle, a conservative on the 26-person Governing Council said there was no urgency for further action since the current policy setting was not suffocating economic growth and inflation could still prove surprisingly stubborn.
Most policymakers appear to agree that any move in July is off the table but many have signalled that September is a possibility.
“We need to be very mindful and not rush to cut rates,” Vasle told Reuters on the sidelines of a conference. “Whether we cut in September or a few months later is an open question.”
Euro zone inflation slowed a touch to 2.5% in June but most expect it to oscillate around current levels for the rest of the year before falling back to the ECB’s 2% target in late 2025.
Should inflation follow this path, then more rate cuts could come.
“If economic outcomes conform to our baseline, then market expectations are broadly in line with my views,” he said.
Investors expect between 1 and 2 rate cuts over the rest of 2024 and see a total of 106 basis points of cuts, or roughly four moves, between now and the end of 2025.
Following this baseline is far from assured, however, Vasle said. A growth rebound could add to price pressures while a tight labour market could put pressures on wages.
“Consumer sentiment is encouraging, growth is holding up, and the labour market is tight, so there is a risk that services inflation will persist,” Vasle said.
Services inflation has remained stubbornly high and policymakers fear it could become entrenched, putting pressure on prices for far longer than currently thought.
“Services inflation is likely to be more persistent, driven by a host of domestic factors, like the momentum of indexed wages,” Vasle said.
