The European Central Bank (ECB) will be in a position to discuss an interest rate cut at its meeting on June 6, said the institution’s vice president, Luis de Guindos, joining a long list of policymakers who put the table that date as the possible start of the policy easing. President Christine Lagarde said at the beginning of the month that the ECB had just begun discussing whether to reduce interest rates, given progress with disinflation.
However, market investors are somewhat skeptical as concerns grow that the US Fed might delay its initial move and the ECB might hesitate to act on its own to prevent a euro slide. “We have not yet discussed anything about future rate movements. We need to gather more information. In June we will also have our new projections and we will be ready to discuss this,” De Guindos told the newspaper ‘Naftemporiki’.
“If we analyze the recent evolution of inflation, we can see a very clear disinflationary process. This is reflected in both the headline and core inflation readings. The main risk is the combination of high wage growth, which is currently around 5%, and very low productivity. These two factors together could lead to a significant increase in unit labor costs,” explained the former Spanish minister in the interview with the Greek newspaper.
Among the 26 members of the Governing Council, the central bank governors of Spain, the Netherlands, Ireland, Greece and Slovakia have publicly backed the June date for cutting rates, while ECB chief economist Philip Lane backed a move in the second quarter, arguing that the ECB would have “much more” information by June.
Dependence on the Fed?
Regarding the dependence on the Fed when taking its next steps, Guindos rules out that it will be a decisive factor. “We act independently. The Federal Reserve is, of course, the central bank of the largest economy in the world, and we analyze what is happening in the American economy. But we depend on the data, not the Federal Reserve, as it has President Lagarde indicated in the past. We are not targeting the exchange rate [euro/dólar]”he points out.
In the opinion of the ‘number two’ of the ECB, the central bank’s policies are not focused on what is happening in the US although they take it into account when making their decisions “Several factors influence the evolution of exchange rates, including the differences in terms of economic performance, the evolution of inflation and the decisions taken by the monetary authorities.pa and the decisions we make.Central banks communicate with each other frequently, but in terms of the decisions we make, we are totally independent,” he noted.
