ECB’s Lane: No Urgency to Cut Rates, Can Take Time to Confirm Disinflation

2 July 2024

By Isabel Teles – SINTRA, Portugal (Econostream) – European Central Bank Executive Board member Philip Lane on Tuesday echoed the words of ECB President Christine Lagarde the previous evening, namely that the ECB was in no hurry to cut interest rates further and could wait for more data.  

In an interview with Bloomberg Television on the margins of the ECB Forum on Central Banking, Lane said, ‘Right now you do have a fairly weak economy, the economy is just starting to grow, but the labour market does have this very low unemployment rate. So we do have an opportunity right now to take the time to really confirm that the upside risks to inflation are contained and the urgency is not there.’

The ECB would be watching developments in the real economy, the labour market and the growth dynamics, as these were good indicators for the inflation outlook in 2025, which was the focus, he said.

Early indicators of June inflation were in line with the assessment of the latest projections, he said, noting that for the ECB to reach the 2% inflation target in 2025, the interest rates would have to be cut.

The timeline of cuts would, however, would depend on how confident the ECB was on the inflation process, especially in services, he said.

‘We have essentially eight meetings between now and this time next year’, he said, ‘[W]e’re essentially looking for extra confidence about the remaining disinflation we need to do and the key issue that is really services inflation.’

The July Governing Council meeting would be ‘an important intermediate step to the key September forecast’, he said.

The July meeting would be live in terms of the survey data that would be available, he said, but acknowledged there would probably not be enough information for the ECB to be sufficiently confident about services.

‘We still have questions about services inflation, these data [available in July] do not settle that, it’s not an outside surprise, it’s more or less in line with the baseline, but on that we need a bit of extra time’, he said.

Aked about the possible economic impact of the snap elections in France, he said it was natural for the markets to reprice during elections. The conditions for activating the Transmission Protection Instrument (TPI) were not given, he said.

‘It’s important in the euro area that we let the markets reprice in an orderly way’, he said.