ECB Insight: de Guindos’ Comments Suggest April Rate Cut May Be Gaining Ground

17 March 2025

By David Barwick – FRANKFURT (Econostream) – In the review we published one week ago of where each European Central Bank Governing Council member appeared to stand with respect to April’s monetary policy decision, we had to relegate ECB Vice President Luis de Guindos to the category ‘too unclear to call’. Not anymore.

Naturally, neither in yesterday’s interview with The Sunday Times nor in the one this morning with Spanish radio station Onda Cero did de Guindos explicitly endorse or predict any particular outcome one month from today.

Indeed, much of Sunday’s interview was devoted to the extreme uncertainty, one implication of which is that whatever de Guindos prefers today, come 17 April, he could deem another decision more appropriate.

Still, reading the relevant sections of Sunday’s interview, we think one is led inexorably to the conclusion that the number two at the ECB is presently leaning in the direction of another rate cut.

De Guindos devotes the first five sentences of that interview to assuring that disinflation is ‘on track’, principally because ‘all [italics ours] indicators for services and underlying inflation are moving in the right direction’, including wage growth. He repeated 'all' in Monday's radio interview.

'All' goes beyond what ECB President Christine Lagarde said on 6 March, namely that ‘[m]ost indicators of underlying inflation are pointing to a sustained return of inflation to our 2% medium-term target.’

In the Sunday Times, De Guindos then briefly acknowledges high uncertainty, only to promptly reassure that this is no reason not to be confident of a sustainable return to price stability by early next year if not sooner.

The pattern repeats with that interview’s second question: de Guindos reaffirms that inflation is converging to target, again notes elevated uncertainty and then once more asserts that ‘we are confident’, pointing anew to moderating wage growth and adding that ‘[e]ven energy prices’ are now helping.

It isn’t true however that de Guindos said nothing that could favour an April pause. An example was his reaction to question three, which inquired about the ECB’s view of risen German bond yields and changed market rate expectations.

‘[W]e also need to try to look through the short-term evolution of markets and distinguish between short-term volatility and permanent or medium-term forces’, he said, seemingly discounting higher yields, whose tightening impact on financing conditions would tend to argue for rather than against easing.

We find interesting the comment he then added: ‘If we were to be as volatile as the markets, that wouldn’t be very reassuring.’

This remark harks back to Lagarde’s speech at last week’s ECB Watchers conference, in which she said that policymakers would be expected to ‘help reduce, rather than amplify, uncertainty’ and that ‘a clear reaction function is critical to tempering volatility in a world of exceptional uncertainty.’

To our mind, in the toss-up situation April may bring, this sentiment could argue on balance in favour of a cut.

In his response to question four, de Guindos voiced satisfaction with new fiscal developments, which, he said, ‘will likely be positive for growth and have a limited impact on inflation.’

That he glosses over the fact that the ‘limited impact’ on price pressures would be all to the upside suggests a genuine lack of concern with the potential for any interference with price stability.

This is less so for his next relevant comments, concerning the ramifications of a trade conflict. This ‘would be a lose-lose situation for everybody’ that ‘would have a much worse impact on growth than on inflation’ because the hit to growth would ultimately dampen initially higher inflation, he said. He reiterated the argument on Monday.

Finally, de Guindos sounds sceptical about stronger household spending, affirming that ‘the reality is that consumption is not picking up’. It would ‘eventually’, he said, but for now, uncertainty was restraining consumer confidence and thus private consumption.

The totality of the ECB vice president’s comments is less easily squared with the view that monetary policy easing has run its course, or that a pause is called for, than with the view that authorities need to lean in without flinching.

A less inhibited fiscal stance supporting a more hawkish perspective may not unfold its impact soon enough to point to a pause in April. The chief near-term consequences are the higher yields already in ample evidence, and these argue for cutting; indeed, a former Executive Board member recently told Econostream that yields at 2.9% or above would compel the ECB to ease.

As for the tariffs, even if the initial impact is to add to price pressures, de Guindos seems inclined to look through that, as Lagarde might too, based on her comments last week such as the call to respond to new shocks ‘within a well-defined framework that limits short-sighted reactions and unbridled discretion.’

Of course, uncertainty on either front may remain high in April. In such a case, what is left?

What is left is: the apparent conviction that inflation is going the right way and the economy – also precisely due to the uncertainty - the wrong way. The fundamental view of most Council members, reflected in the assumptions of the baseline scenario, that 2.5% is not the terminal rate. And, based on the aforementioned tally, a Governing Council that for now seems to tilt towards easing further.

With new data suggesting that the French labour market may be at an inflection point, we have less reason than ever to doubt that Banque de France François Villeroy de Galhau, whom we had already grouped among likely supporters of more easing, will strongly wish to cut again in a month, under current circumstances.

He was never destined to be alone. Barring new developments that would change the relevant equation, we now think he can count on the support of de Guindos.

De Guindos is not just anyone. He is relatively centrist, on which basis he could be considered somewhat of a bellwether of the Council’s mood. And of course he is ECB vice president, meaning he may have an earlier idea than most of which way the wind is blowing.