Economic indicators point to easing – ECB’s Cipollone

Recent economic indicators strengthen the European Central Bank’s confidence in lowering borrowing costs as inflation eases, according to ECB board member Piero Cipollone on Sunday, according to Reuters.

While the ECB has indicated a likely interest rate cut on June 6, some analysts are revising down their expectations for further reductions following stronger-than-expected wage data last week. However, Cipollone maintains the ECB’s stance of a gradual decline in inflation.

Cipollone stated, “Barring any unexpected shocks, we anticipate inflation to hover around current levels in the coming months before declining to our target next year.” He added, “Recent data support this view and bolster our confidence in dialling back our tight monetary policy stance.”

Market sentiment overwhelmingly predicts that the ECB will cut its policy rate, currently at a record high of 4.0 per cent, only twice this year, down from earlier expectations of three cuts.

Negotiated pay growth in the eurozone showed a slight increase in the first quarter of 2024, as per ECB figures released on Thursday. This led some analysts to adjust their expectations for rate cuts due to the potential impact of higher wages on inflation.

Despite the uptick in wage pressures, the ECB remains steadfast in its projection of a slowdown in wage growth this year.

Several policymakers, including Bundesbank President Joachim Nagel and Banque de France Governor Francois Villeroy de Galhau, have downplayed the significance of the latest wage data release.