ECB June rate cut looks increasingly likely — but there are ‘still some caveats,’ German central bank chief says

European
Central
Bank
policymaker
Joachim
Nagel
said
Wednesday
that
a
rate
cut
for
the
institution
looks
increasingly
likely
for
June,
but
added
that
certain
parts
of
the
incoming
inflation
data
still
look
higher
than
desired.

“Talking
about
the
June
meeting,
I
think
the
probability
is
increasing
that
we
will
see
a
rate
cut
in
June
but
there
are
still
some
caveats,”
the
chief
of
Germany’s
Bundesbank
told
CNBC’s
Karen
Tso
at
the
IMF
Spring
Meetings
taking
place
in
Washington,
D.C.

“Core
inflation
is
still
high,
service
inflation
is
high.
For
the
June
meeting
we
will
get
our
projections,
so
we
will
get
our
new
forecasts
and
if
there
is
a
confirmation
that
inflation
is
really
going
down
and
we
will
achieve
our
target
in
2025,
as
I
said,
the
probability
is
becoming
higher
that
this
rate
cut
is
here
for
the
June
meeting,”
Nagel
said.

When
asked
about
wage
price
pressures
still
lingering
in
the
euro
area,
he
said
that
in
Germany
there
is
still
some
wage
momentum
but
that
it
was
broadly
still
on
a
downward
trajectory.
On
energy
prices,
he
said
a
recent
uptick
in
oil
prices
—
compared
with
last
year
—
was
an “uncertainty”
in
what
he
described
as
a
volatile
environment.

“I
think
we
learned
a
lesson
in
2022,
we
are
exposed
to
all
this,”
he
said
regarding
a
crisis
in
Europe
that
was
particularly
acute
for
the
industrial
sector
in
his
homeland.

“We
are
more
resilient
than
maybe
we
were
two
years
ago.
But
nevertheless
if
oil
prices,
energy
prices,
are
going
up
this
is
not
only
something
for
Germany
—
this
is
for
all
of
us.”

Several
ECB
officials
have
made
remarks
about
their
expectations
for
interest
rates
in
recent
days.

Earlier
Wednesday,
Mario
Centeno,
governor
of
Portugal’s
central
bank,
said
it
was “about
time
to
change
this
monetary
policy
cycle.”
Centeno
pointed
to
slowing
inflation,
but
also
reiterated
that
the
ECB’s
main
decision-making
body
was
data-led.

The
ECB’s
June
interest
rate
decision
would
be “very
important,”
he
said.

“I’m
sure
that
we
will
deliver
the
response
that
is
consistent
with
the
recovery
of
the
euro
area
economy
that
we
have
in
our
forecast,”
he
told
CNBC’s
Tso,
noting
that
market
expectations
for
June
were “very
clear.”

Markets
are
widely
pricing
in
the
first
rate
cut
from
the
ECB
to
take
place
in
June.

On
Thursday,
the

ECB
left
interest
rates
unchanged
for
the
fifth
time
in
a
row.
The
central
bank
also
changed
its
language
around
potential
rate
cuts,
noting
that
a
reduction “would
be
appropriate”
if
the
bank
felt
confident
inflation
was
falling
back
toward
its
2%
target “in
a
sustained
manner.”

Euro
zone
inflation
slowed
by
more
than
expected
to
2.4%
in
March.

Earlier
this
week,
ECB
President
Christine
Lagarde
said
that
unless
there
were
any
major
shocks,
the
ECB
was
on
track
to
cut
interest
rates
soon.
The
process
of
disinflation
was
proceeding
according
to
expectations,
she
told
CNBC’s
Sara
Eisen.

“We
just
need
to
build
a
bit
more
confidence
in
this
disinflationary
process
but
if
it
moves
according
to
our
expectations,
if
we
don’t
have
a
major
shock
in
development,
we
are
heading
towards
a
moment
where
we
have
to
moderate
the
restrictive
monetary
policy,”
she
said.

Separately,
Austrian
central
bank
Governor
Robert
Holzmann
on
Wednesday
said
the
ECB
was
looking
at
economic
growth
as
well
as
inflation
as
both
could
impact
monetary
policy
and
interest
rate
decision-making.

Holzmann
said
geopolitical
tensions
in
the
Middle
East
were
the
biggest
risk
when
it
comes
to
interest
rate
cuts,
especially
due
to
the
potential
impact
on
energy
prices.

He
also
added
that
he
wasn’t
fully
committed
to
a
June
rate
cut
just
yet,
explaining
that
the
bank
was
waiting
on
the
results
of
a
number
of
wage
negotiations,
which
happen
in
the
spring,
as
well
as
developments
in
the
oil
market.