ECB’s de Guindos: First Rate Cut in June, Barring Surprises

23 April 2024

By Aurėja Bobelytė – VILNIUS (Econostream) – European Central Bank Vice President Luis de Guindos on Tuesday said that if the disinflationary process continued and nothing unexpected materialised, the ECB would start easing its monetary policy in June.

In an interview with French daily Le Monde, de Guindos said, ‘We have been very clear: if things move in the same direction as they have in recent weeks, we will loosen our restrictive monetary policy stance in June. Assuming there are no surprises between now and then’.

Headline and core inflation were falling, which were important accomplishments, he said. ‘All the indicators are moving in the right direction. We’re not there yet, but the end is in sight.’

Inflation in the services sector, mostly driven by wages, posed the largest risk for the disinflationary process, he said, though there had been ‘a clear slowdown in the dynamics’.

Asked about interest rate cuts after June, de Guindos said that further reductions would be data-dependent and consider the geopolitical situation and its impact on oil prices, developments in wages and productivity, and the situation in the United States, where inflation was higher.

‘The level of uncertainty makes it very difficult to say [what would happen after a first rate cut]. I already mentioned June. As for what happens afterwards, I’m inclined to be very cautious’, he said.

The Fed’s decisions were crucial for the global economy, he said, and the euro-US dollar exchange rate could be affected by monetary policy decisions. ‘We don’t have an exchange rate target, but we need to take the impact of exchange rate movements into account.’

‘Moreover, concerns about the United States could be transmitted via financial market expectations, which are currently pricing in a perfect disinflation process, with a soft landing for the economy, a fall in inflation, lower interest rates, etc’, he said. ‘If anything untoward happens, we might see a rise in volatility and a price correction that could end up spreading to European banks.’