June 23, 2024

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ECB is ready to start cutting interest rates, says chief economist

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The European Central Bank has sent a clear signal that it will cut interest rates from their historic highs next week, as its chief economist brushed off fears that doing so before the US Federal Reserve could backfire.

The ECB now looks almost certain to be one of the first major central banks to cut rates, having been criticised for being one of the last to raise them after the biggest inflation surge for a generation three years ago.

Philip Lane told the Financial Times in an interview ahead of the bank’s landmark June 6 meeting: “Barring major surprises, at this point in time there is enough in what we see to remove the top level of restriction.”

Investors are betting heavily that the ECB will lower its benchmark deposit rate by a quarter percentage point from its record high of 4 per cent at next week’s meeting after Eurozone inflation fell close to the bank’s 2 per cent target.

The Swiss, Swedish, Czech and Hungarian central banks have already reduced the cost of borrowing this year in response to falling inflation. But among the world’s major economies, the Fed and Bank of England are not expected to cut rates before the summer and the Bank of Japan is considered more likely to continue raising them.

Asked if he was proud that the ECB was in a position to cut rates earlier than others, Lane said: “Central bankers aspire to be as boring and I would hope central bankers aspire to have as little ego as possible.”

He added that a key reason why inflation had fallen faster in the Eurozone than the US was because the region had been hit harder by the energy shock triggered by Russia’s invasion of Ukraine. “Dealing with the war and the energy problem has been costly for Europe,” he said.

“But in terms of that first step [in starting to cut rates] that is a sign that monetary policy has been delivering in making sure that…

2024-05-27 09:27:09

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