ECB’s Nagel Says Rate Cuts Won’t Be Automatic Once They Begin
(Bloomberg) — The prospects for monetary easing by the European Central Bank are improving, though that doesn’t necessarily mean there’ll be a sequence of interest-rate reductions once the process begins, Governing Council member Joachim Nagel said.
With inflation set to return to the 2% target in 2025, the probability is increasing that there’ll be a first cut “before the summer break” in August, the Bundesbank president said Friday. But investors shouldn’t draw the conclusion that the same will happen at every subsequent meeting, he said.
“I do not see that there is a kind of an automatism,” Nagel told an MNI webcast. “It is data dependent and it is not a done deal that everything is going smoothly for the rest of the year or maybe for next year. So we have to be vigilant, we have to be cautious.”
President Christine Lagarde made similar remarks on Wednesday, saying officials can’t commit to further steps following June’s likely cut. She also emphasized again that policymakers need more data on wages, productivity and corporate profits to be sufficiently confident that inflation is sustainably heading back to 2%.
Nagel spoke a day after the Swiss National Bank unexpectedly lowered rates and the Bank of England signaled it’s edging toward easing later this year. The US Federal Reserve this week reiterated its intention to trim rates three times this year, with a first move widely expected in June.
ECB officials have also converged around that month as the appropriate point to begin decreasing borrowing costs, with the debate now focusing on the path beyond that. Some want a series of cuts already this year — in line with investors’ expectations — while others are urging caution.
Nagel cited volatile energy costs and uncertainty about wages and profits as reasons why policymakers should remain alert.
“There are still some open issues,” he said. “This meeting-to-meeting approach is the best way to address the current situation.”
The International Monetary Fund and the Bank for International Settlements this week warned central banks against declaring victory too early and easing policy too soon.
Price growth in the euro area plunged in 2023, but was recently more stubborn than expected. While the economy avoided a recession in the second quarter, the outlook remains bleak – in particular due to protracted weakness in Germany.
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