ECB Insight: Insiders See Likelihood of July Cut as Low, but Don’t Expect It to Be Excluded

5 June 2024

By David Barwick – FRANKFURT (Econostream) – A July rate cut by the European Central Bank appears unlikely, given the need for the ECB to proceed with easing carefully and supported by data every step of the way, in the opinion of several insiders who spoke to Econostream very recently.

Of the three policymakers to share their views, all of whom assumed the ECB would cut interest rates this week, none excluded the possibility of a July cut, though two of them – the relatively hawkish ones – considered it most improbable, while the third stressed the absence of pre-commitment.

One insider said he would not personally support a July cut but expected ‘several’ of his fellow Council members to do so, given that some had been ready to start easing as early as March.

However, he quickly asserted, most of the Governing Council would oppose a July cut, given the ‘lack of additional data’ between now and that meeting, when the macroeconomic forecasts are not scheduled to be updated.

Another insider also noted that back-to-back rate cuts already enjoyed some support even before the 6 June policy meeting.

‘Essentially, it will depend on the forecasts we get now and the news that we get in July’, he said. ‘A cut in July is definitely possible, just as it’s possible that we don’t move again for a while.’

The monetary policy context could not be assessed as fully without new projections as it could with them, he admitted, which is why in the past, major ECB decisions had typically been made in conjunction with forecast updates.

This however should not be understood as to take July off the table all by itself, he said. After all, he reasoned, if non-forecast meetings were ineligible as occasions to make policy moves, then the Governing Council could simply dispense with those meetings - and the associated need to travel to Frankfurt - altogether.

‘It is open for discussion’, he insisted. ‘It’s not as though there would be no need for further discussion following the June decision because of some pre-commitment. There is none.’

A third insider said that the decision regarding July would hinge critically on when the new projections showed 2% inflation being achieved and how sustainable inflation developments were judged to be.

‘If the criteria we identified continue to evolve positively, then monetary policy easing will also continue’, he said. ‘But a real discussion can only take place on the basis of the data.’

Still, from the perspective of today, an attitude of considerable caution following the first cut was warranted, which did not argue for a July cut, he emphasised. Indeed, back-to-back rate cuts at this point appeared ‘highly unlikely’, even if this was by no means the same as ‘definitely not’, he said.