ECB eyes June rate cut, awaits Fed’s move

The European Central Bank (ECB) could begin reducing interest rates as early as June, given the faster than anticipated fall in inflation, Austrian policymaker Robert Holzmann said, as reported by Reuters on Wednesday.

However, he cautioned against moving too far ahead of the US Federal Reserve, as it could lessen the impact of the ECB’s easing measures.

The Euro area has seen a significant drop in inflation over the past year, and economic growth has come to a standstill. This has sparked discussions about the speed and extent of the ECB’s potential reversal of its record rate hikes.

Holzmann, known for his conservative stance and often resisting rate-cut discussions, has shown a cautious openness towards a rate cut in June.

This suggests a growing consensus among the ECB’s 26-member Governing Council for such a move, which has already been suggested by several members.

However, Holzmann warned that if the US Federal Reserve does not also cut rates in June, the market’s reaction to this policy divergence could offset much of the ECB’s rate-cut benefits. Therefore, the ECB should be wary of acting independently.

Holzmann stated that if the data in June supports a rate cut and the Fed is expected to make a similar decision a week later, the ECB is likely to proceed with the cut. However, if the Fed does not follow suit, it could diminish the economic impact of the ECB’s move.