A sculpture of the euro coin stands in the city center of Frankfurt am Main, western Germany, on January 25, 2024.
Kirill Kudryavtsev Afp | Getty Images
Scores of economists and monetary policymakers gathered in New York this week for the spring meetings of the International Monetary Fund — including many decision makers from the European Central Bank.
CNBC spoke with 12 members of the ECB’s Governing Council at the event to reveal their latest views on the outlook for interest rates and inflationary pressures after euro zone price increases eased to 2.4% in March.
The ECB chose to keep interest rates steady in April and its next meeting to vote on monetary policy on June 6.
Christine Lagarde, President of the ECB
The ECB figure gave a consistent message that mirrored her statements recent press conferences: markets should expect a rate cut soon, with no big surprises.
“We just need to build a little more confidence in this deflationary process, but if it moves in line with our expectations, if we don’t have a big shock to growth, we’re heading towards a time where we have to ease the restrictive monetary policy,” Lagarde told Sara CNBC’s Eisen.
François Villeroy de Galhau, Governor of the Bank of France
According to Villeroy, the ECB should cut in June so higher interest rates don’t do too much damage to the eurozone economy, which narrowly avoided recession last year, but fell into stagnation.
Barring a big surprise before the next Governing Council meeting in early June, “we should cut rates because we are now quite confident and increasingly confident about the deflationary path in the euro area,” Villeroy told CNBC’s Karen Tso.
“There’s now a very large consensus that it’s time to get that insurance more or less against what I would call the second risk. The first risk is that we act too early and let inflation rise again, and that would be a risk.” he said. “But the second risk would be that we would be behind the curve and pay a very high cost in terms of economic activity and employment.”
Joachim Nagel, President of the German Bundesbank
Chance of June cut increases, Nagel said. He added that there were caveats, including the risk of higher oil prices.
″Core inflation is still high, services inflation is high. For the June meeting we’ll get our forecasts, so we’ll get our new forecasts and if there’s confirmation that inflation is actually coming down and we’re going to hit our target in 2025, as I said, the likelihood is increasing that the rate cut is here for the June meeting,” Nagel explained.
Robert Holzmann, Governor of the Central Bank of Austria
One of the Boards of Directors The most hawkish member, Holzmann pointed to geopolitical tensions as the biggest threat to a rate cut this year.
“We have seen what happened in the Middle East … we may have a different oil price, and that of course may require us to review our strategy,” he said.
Mario Centeno, Governor of the Bank of Portugal
For Centeno, a more pointed member, it is “time to change this monetary policy cycle” given the recent slowdown in inflation.
“I am confident that we will give the response that is consistent with the recovery of the euro area economy that we have in our forecasts,” Centeno said, adding that the market’s expectations for June were “very clear.”
Gabriel Makhlouf, Governor of the Central Bank of Ireland
Makhlouf said the most recent data sets had changed his view of the rates. Before Christmas he wasn’t even ready to rule out further hikes.
The ECB ended its run of 10 consecutive rate hikes in September when it raised its key rate to a record 4%.
“I think in the last few weeks we’ve seen enough data to say we’ve reached the top of the ladder and in our last meeting, from my perspective, we have more confidence that we can start to ease the tightening of our monetary policy,” he said. Makhlouf.
Pierre Wunsch, governor of the National Bank of Belgium
“We would need some really bad news not to cut in June,” Wunsch told CNBC, referring to two unexpected negative inflation data or a spike in oil prices. ECB staff forecasts, wage data and the rate of services inflation will also be critical, he said.
On a possible further cut in July, Wunsch said he would be “on the cautious side.”
Boris Vujčić, governor of the National Bank of Croatia
Examining whether the ECB would be affected by recent events in the US, where Stickier-than-expected inflation and comments from Federal Reserve Chairman Jerome Powell have caused markets to push back expectations of rate cuts, Vujicic stressed the central bank’s independence.
“We will conduct our policy independently of the Fed. We will look at all of our data and there have been clear divergences between the US and Europe since the beginning of the inflation cycle, not just now. So whatever the Fed chooses not will determine what our choice is,” Vujicic said.
Gediminas Šimkus, Governor of the Bank of Lithuania
Šimkus also highlighted the differences between inflation in the US and Europe, with the former driven by fiscal policy along with commodities and the latter focused on energy and food.
“We don’t follow the Fed … and now the ECB will be the central bank that follows,” Simkus said. This is despite the potential global negative effects of a stronger dollar due to higher longer-term interest rates in the US, he said.
Šimkus added that his current baseline was for “about three” rate cuts this year.
Edward Scicluna, Governor of the Central Bank of Malta
Scicluna said the backdrop of a “very weak economy, very weak economic growth over the last six quarters” in the euro zone was key to rate decisions. That framework is despite the divergence between resilience in the service-oriented south and weakness in the more manufacturing-focused north, he said.
“Everything is pointing to … lower inflation across the board, including wages, food, energy and so on,” he said.
“It’s more of a question of whether you’re risk averse and fearful because of the risks you expect to reduce. Someone could cut rates a lot in March or even April,” he continued, adding that he hoped a majority of Governing Council members would support a cut in June.
Mārtiņš Kazāks, Governor of the Bank of Latvia
Kazāks said the ECB could be “confident” the worse is behind in terms of inflation, despite the risks.
Two measures of inflation are still expected before June, he noted, meaning a cut is not guaranteed — but “the likelihood is quite high.”
Olli Rehn, Governor of the Bank of Finland
Like other policymakers, Wren said it would be appropriate to cut interest rates in June if inflation continues to hold in line with forecasts. He pointed to tensions in the Middle East as a potential risk.
“So far escalation has been avoided and we have seen that the market reaction to the events has been rather moderate … but there is still some risk of escalation,” he said.