ECB Chief Economist Signals Stronger Case for June Rate Cut

The argument for an interest rate cut by the European Central Bank (ECB) in June is gaining strength, according to ECB Chief Economist Philip Lane, who spoke to Spanish newspaper El Confidencial on Monday.

Lane indicated that services inflation is beginning to ease, a development that supports the case for a rate cut. The ECB has essentially committed to a rate cut on June 6, conditional upon incoming data reinforcing policymakers’ belief that inflation will return to its 2% target by the middle of next year.

“The April flash estimate for euro area inflation and the first quarter GDP number that came out improve my confidence that inflation should return to target in a timely manner,” Lane stated in the interview. He also mentioned that while his personal confidence level has increased since the April meeting, more crucial data is yet to be published in the coming weeks.

Despite market expectations aligning with a rate cut in June, doubts about future moves have surfaced, particularly after the U.S. Federal Reserve suggested a potential delay in its own policy easing. Lane emphasized that while the ECB is not reliant on the Fed’s decisions, a widening interest rate gap between the two central banks could weaken the euro and boost European inflation, potentially limiting the ECB’s willingness to act independently.

Regarding April’s inflation data, Lane noted progress in services prices but emphasized the need to monitor services closely to prevent a derailment of disinflation efforts later on. Overall inflation was at 2.4% in April, and the ECB anticipates it will remain around this level for most of the year before decreasing again in 2025.

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