FRANKFURT (Reuters) – European Central Bank policymakers still expect to cut interest rates in June but some think the case for pausing at their following meeting is becoming stronger given a continued rebound in U.S. inflation, three sources told Reuters.
The ECB held interest rates at a record high on Thursday but signalled it may soon start to reduce them if data continued to point to disinflation.
ECB policymakers speaking after the meeting said they thought they will go ahead with a 25-basis-points rate reduction at their June 6 meeting, just as many of them suggested in recent weeks.
Every wage indicator is pointing in the right direction, growth is weak, and inflation has clearly cooled, warranting a cut in the record high 4% deposit rate, they argued.
An ECB spokesperson declined to comment.
But the path further ahead had become more uncertain after a stronger-than-expected U.S. inflation reading on Wednesday, which had “shaken” some policymakers in the words of a source and played an important part in Thursday’s discussion.
While the July decision was not explicitly debated, some policymakers argued that a delayed start to the Fed’s own cutting cycle warranted caution from the ECB, the sources said.
They thought the euro zone’s central bank could skip a mid-summer rate reduction until it was comfortable with the path for U.S. borrowing costs.
Others insisted that the U.S. was in a very different position to the euro zone both in terms of the economic cycle and of the fiscal stance.
Policy doves who would have wanted a rate cut already on Thursday are sticking to hopes that they would get one at the July 18 meeting to follow June’s well telegraphed move.
ECB President Christine Lagarde stressed at a new conference on Thursday inflation in the United States and the euro zone was “not the same” and the ECB was not “Fed-dependent”.
The ECB said in a statement that it “would be appropriate” to cut rates if inflation, including underlying measures of it, and financing conditions make it more confident of reaching its 2% target but it was “not pre-committing to a particular rate path”.
