ECB Signals Possible Rate Cuts Amid Gradual Inflation Decline but Urges Caution
Friday, Aug 23, 2024 5:00 am ET
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European Central Bank (ECB) Governing Council member Boris Vujcic has indicated that the ECB is likely to proceed with gradual rate cuts as inflation nears the 2% target. However, he cautions that significant risks remain, urging a prudent approach.
"As long as the data aligns with our forecasts, which predict a return to 2% inflation by 2025, it will bolster our confidence in gradually easing monetary policy constraints," said Vujcic, who also serves as the Governor of the Croatian National Bank. He emphasized the need for a cautious and measured approach during an interview.
Speaking at the Federal Reserve's annual Jackson Hole symposium, Vujcic suggested that a rate cut in September is a possibility, a sentiment widely anticipated by investors. "There are still some data releases scheduled before our next meeting," he added, "but so far, we have not seen any significant deviations from our expected or forecasted figures."
During the event, Vujcic remarked that inflation trends are "roughly in line with our predictions" and noted that the uncertainty surrounding the inflation outlook has "slightly decreased."
On August 23, Vujcic reiterated the need for caution. He mentioned that if the inflation outlook remains unchanged, a gradual reduction in rates is feasible. He also noted that a stronger euro could help curb inflation.
Other ECB members have also been vocal about the upcoming policy direction. Martins Kazaks, for instance, expressed his readiness to discuss another rate cut at next month's meeting. Kazaks emphasized his confidence that inflation could return to the 2% target while highlighting ongoing economic uncertainties.
Kazaks, who holds a more hawkish stance, stated that based on current data, he is very open to debating a rate cut in September. Significant wage data released on Thursday showed a slowdown in collective agreement wage growth during the second quarter, bolstering hopes for a return to 2% inflation by 2025.
The ECB's efforts to reduce borrowing costs have been well-received, albeit amid underlying economic fragility. Kazaks added that monetary policy has effectively laid the groundwork for curbing inflation and fostering growth, yet the lack of structural improvements continues to pose challenges.
The Jackson Hole symposium saw an overall consensus among ECB members, with Kazaks affirming that sequential rate cuts would be ideal. He also noted the necessity of maintaining a tight monetary stance in the short term, even with a few more adjustments to the deposit rate, which currently stands at 3.75%.
Olli Rehn, Governor of the Bank of Finland and ECB Governing Council member, also highlighted growing risks to Europe’s growth prospects, further justifying policy adjustments at the upcoming ECB meeting scheduled for next month.
With three weeks until the next ECB monetary policy meeting, the Council's decisions will hinge on upcoming data, determining how borrowing costs should be adjusted. The minutes from the ECB’s July meeting revealed that the September meeting is widely seen as an opportune moment to re-evaluate the monetary policy stance.
As per the ECB's decision records, the Council remains committed to an open-minded approach, especially considering the enduring risks to the inflation outlook, avoiding undue focus on any single data point.
"As long as the data aligns with our forecasts, which predict a return to 2% inflation by 2025, it will bolster our confidence in gradually easing monetary policy constraints," said Vujcic, who also serves as the Governor of the Croatian National Bank. He emphasized the need for a cautious and measured approach during an interview.
Speaking at the Federal Reserve's annual Jackson Hole symposium, Vujcic suggested that a rate cut in September is a possibility, a sentiment widely anticipated by investors. "There are still some data releases scheduled before our next meeting," he added, "but so far, we have not seen any significant deviations from our expected or forecasted figures."
During the event, Vujcic remarked that inflation trends are "roughly in line with our predictions" and noted that the uncertainty surrounding the inflation outlook has "slightly decreased."
On August 23, Vujcic reiterated the need for caution. He mentioned that if the inflation outlook remains unchanged, a gradual reduction in rates is feasible. He also noted that a stronger euro could help curb inflation.
Other ECB members have also been vocal about the upcoming policy direction. Martins Kazaks, for instance, expressed his readiness to discuss another rate cut at next month's meeting. Kazaks emphasized his confidence that inflation could return to the 2% target while highlighting ongoing economic uncertainties.
Kazaks, who holds a more hawkish stance, stated that based on current data, he is very open to debating a rate cut in September. Significant wage data released on Thursday showed a slowdown in collective agreement wage growth during the second quarter, bolstering hopes for a return to 2% inflation by 2025.
The ECB's efforts to reduce borrowing costs have been well-received, albeit amid underlying economic fragility. Kazaks added that monetary policy has effectively laid the groundwork for curbing inflation and fostering growth, yet the lack of structural improvements continues to pose challenges.
The Jackson Hole symposium saw an overall consensus among ECB members, with Kazaks affirming that sequential rate cuts would be ideal. He also noted the necessity of maintaining a tight monetary stance in the short term, even with a few more adjustments to the deposit rate, which currently stands at 3.75%.
Olli Rehn, Governor of the Bank of Finland and ECB Governing Council member, also highlighted growing risks to Europe’s growth prospects, further justifying policy adjustments at the upcoming ECB meeting scheduled for next month.
With three weeks until the next ECB monetary policy meeting, the Council's decisions will hinge on upcoming data, determining how borrowing costs should be adjusted. The minutes from the ECB’s July meeting revealed that the September meeting is widely seen as an opportune moment to re-evaluate the monetary policy stance.
As per the ECB's decision records, the Council remains committed to an open-minded approach, especially considering the enduring risks to the inflation outlook, avoiding undue focus on any single data point.