The European Central Bank on Thursday held interest rates steady for a fifth straight meeting, as anticipation builds for rate cuts in June.
“If the Governing Council’s updated assessment of the inflation outlook, the dynamics of underlying inflation and the strength of monetary policy transmission were to further increase its confidence that inflation is converging to the target in a sustained manner, it would be appropriate to reduce the current level of monetary policy restriction,” it said in a statement.
The ECB made no direct reference to loosening monetary policy in its previous communiques.
The central bank for the 20 countries that share the euro currency hiked its key rate to a record 4% in September. It has left this rate unchanged at every gathering since.
Policymakers and economists have zeroed in on June as the month when rates could start to be reduced, after the ECB trimmed its medium-term inflation forecast. Price rises in the euro zone have since cooled more than expected in March.
June will also be the first month when policymakers will have a full set of data on first quarter wage negotiations — an area of concern for potential inflationary effects.
The ECB on Thursday said incoming information had “broadly confirmed” its medium-term outlook, with falling inflation led by lower food and goods.
Market pricing suggests a 25-basis-point cut in June, according to LSEG data.
“For a while now, the ECB has essentially pre-committed to a June cut. There is a high bar for this not to be delivered. But there is a wide range of possible outcomes in the subsequent months, depending on further progress with disinflation. So far, the data is moving in the doves’ favour,” said Hussain Mehdi, director of investment strategy at HSBC Asset Management, in a note.
In the U.S., expectations for a summer rate cut have been significantly curtailed by inflation data this week coming in higher than forecast.
In comments reported by Reuters, Sweden’s central bank Deputy Governor Per Jansson on Thursday said that if the U.S. Federal Reserve rules out rate cuts in 2024, it could present a “problem” for both the Riksbank and the ECB.
In the case of the Riksbank, this would be due to the weakening of the Swedish krona fueling inflation, Jansson said in a speech.
“The ECB is currently in the business of building confidence in its view that European inflation is on track to return to its 2% target,” Andrew Benito, chief European economist at Eisler Capital, told CNBC’s Silvia Amaro ahead of the announcement.
European data is on track to deliver that, keeping the ECB on track for a June cut – but the pace and extent of further cuts this year “could be more sensitive to U.S. data and Fed policy,” Benito added.
