ECB’s Nagel: Increasing Probability of Rate Cut Before Summer Break

22 March 2024

By Isabel Teles – FRANKFURT (Econostream) – European Central Bank Governing Council member Joachim Nagel on Friday said that that current data showed inflation converging to the target by 2025, which increased the probability of a reduction in interest rates before the summer break.

Speaking at an MNI Webcast, Nagel, who heads the German Bundesbank, said, ‘I believe now that the probability is increasing that we will see the first rate cut before the summer break. But I guess it is also important to say here that it is dependent on data.’

Data-dependence should not be perceived as an excuse, he said, noting that the geopolitical situation, energy prices and wages were sources of uncertainty that justified analysing the latest data at every meeting.

‘There are still some open issues and, as I said, this meeting-to-meeting approach is the best way to address the current situation’, he said.

He avoided speculations about a rate cut in April, but noted, ‘if I could more or less put that into probabilities, definitely something in June has a higher probability than in April, this is for sure.’

In a couple of months there would be, for instance, ‘definitively more clarity’ about wages, he said.

The decision to cut interest rates would depend on the fact that ‘everything is going smoothly for the rest of the year or maybe for next year’, he said.

A first rate cut did not mean that others would follow automatically, he said: ‘[I]f you start such a [cutting] cycle that doesn’t mean that in the next meeting there’s another rate cut.’

Victory over inflation should not be declared too early, he said.

‘We should not become too nervous and maybe too over-optimistic about the inflation picture’, he said. ‘We need a little bit more clarity here, especially when we’re talking about core inflation.’