The ECB plans to wait until the spring before revising its policy strategy. Speculation about interest rate cuts in March or April is therefore hasty, as Boštjan Vasle, a member of the European Central Bank, stressed on Monday.
Last week brought no changes to interest rates from the ECB, which remains committed to stable policy in the coming months. This comes despite investors putting pressure on the bank, given the US Federal Reserve's lead and recent data pointing to favorable changes in inflation.
Vasle, the Governor of the Bank of Slovenia, shrugs off market speculation and argues that financial conditions can no longer remain restrictive, given falling bond yields and forecasts for a 150 basis point rate cut by 2024.
“Market expectations for interest rates cuts are premature in my view, both with regard to the start of cuts and the totality of moves,” Vasle told Reuters in an interview.
“The market pricing has lowered the level of restriction and this recent accommodation priced into interest rates is inconsistent with the stance appropriate to return inflation to target,” said Vasle, known for his conservative stance among ECB Council members.
A change in the ECB's message before March is unlikely, making a possible rate cut before June difficult, according to sources close to last week's discussions.
Markets are now pricing the odds of a rate cut in March at 50-50, with a full cut expected by April and more than two changes expected by June.
That being said, Vasle believes the ECB may need to take stock of its first-quarter results before even considering revising its position.
“We will receive limited new data before the January meeting so it won’t be before March or April that we get more information about inflation, growth, fiscal policy, and the labor market,” Vasle said. “We will need to understand the underlying trends better, and we need the new projections, too.”
Inflation was last recorded at 2.4%, and although it is expected to have bottomed out, it is likely to rise again until the second half of 2025 before falling to 2%.
“Inflation could increase back already at the turn of the year, and then hover in a 2.5% to 3% corridor through the first half of next year. So it’s appropriate to wait and observe price growth through this period and reassess our outlook,” Vasle stated.
Login in Personal Account
153