ECB’s Nagel: Too Early to Speculate on Interest Rate Cuts After June

24 May 2024

By Isabel Teles – FRANKFURT (Econostream) – European Central Bank Governing Council member Joachim Nagel on Friday said that it was not appropriate to speculate on the interest rate path beyond a possible first cut in June.

In an interview with Bloomberg Television, Nagel, who heads the German Bundesbank, said, ‘[W]e really follow the meeting-to-meeting understanding and I believe that should still be the case. So if there is a rate cut in June, we have to wait, and I believe we have to wait until maybe September, I think July. But as I said, it’s too early to speculate.’

There had been an important disinflation trend in the last months, he said, which supported the case for the ECB to cut interest rates in June.

‘[W]hat I see is that the probability is increasing that in 13 days we will see the first rate cut in the Eurozone’, he said.

When comparing the economic situation with the United States, Nagel said that euro area data gave him confidence to start easing monetary policy.

‘We have a good understanding of what’s going on there [in the US], but what I see, taking the Eurozone data… is the confidence that I have that we can, maybe, there’s a high probability of lowering rates at our next meeting.’

The new data released by the ECB showing an increase in wage growth 1Q24 were not a surprise, as wage growth was a lagging indicator still reflecting past inflation, he said.

‘So I believe there is some relief coming also from the wage data side’, he said. ‘Nevertheless, wage data was still strong, so we have to keep our vigilance when it comes to the next rate decision.’

In an uncertain environment that felt the consequences of geopolitical tensions, incoming data was ‘the most important indicator that we have to follow’, he said.

Trade issues, deglobalisation and fragmentation needed to be discussed, he said, and it was necessary to find a ‘smart way’ to prevent them from harming economic growth.