Christine Lagarde, president of the European Central Bank (ECB), at the press conference on the interest rate decision in Frankfurt, Germany, on Thursday, April 11, 2024.
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European Central Bank President Christine Lagarde said on Tuesday that the central bank is still on track to cut interest rates in the near term, ahead of any major shocks.
“We are watching the deflation process unfold in line with our expectations,” Lagarde told CNBC’s Sara Eisen on the sidelines of the IMF’s Spring Meetings.
“We just need to build more confidence in this deflationary process, but if it plays out according to our expectations, if we don’t have any major shocks along the way, then we are heading towards a time of growth. point to regulate restrictive monetary policy.” “, Lagarde said.
“As I said, if there are no further shocks, it will be time to adjust restrictive monetary policy in a reasonably short period of time,” she added.
Her comments came shortly after the central bank made its decision The clearest sign to date that they could start cutting interest rates at the June meeting.
The ECB on Thursday kept interest rates steady at a record high for a fifth straight meeting, but signaled that cooling inflation meant it could start cutting soon.
In a change to previous language, the ECB said it “would be appropriate” to reduce the deposit rate by 4% if underlying price pressures and the impact of previous rate increases increase confidence that inflation is falling. return to the 2% target “in a sustainable way.”
The central bank previously did not directly mention loosening monetary policy in previous announcements.
Policymakers and economists have seen June as the month when interest rates could start to fall, after the ECB cut its medium-term inflation forecast. Rising prices in the euro zone have since cooled more than expected in March.
Asked about the central bank’s confidence in inflation continuing to fall amid rising commodity prices, especially if oil prices spike amid geopolitical tensions, Lagarde replied: “All Commodity prices have an impact and we must pay close attention to those developments. “
“Clearly for energy and food, it has a direct and rapid impact,” she added.
‘The biggest risk comes from geopolitics’
Earlier on Tuesday, ECB policymaker Olli Rehn speak that the prospect of a rate cut in June depends on inflation falling as expected, while noting that the biggest risks to the ECB’s monetary policy stem from Iran-Israel tensions and The Russia-Ukraine war is going on.
Rehn, who serves as governor of the Bank of Finland, said in a statement: “As summer approaches, we can start reducing the level of restrictiveness in monetary policy, provided inflation continues decreased as expected.
“The biggest risks stem from geopolitics, both the deteriorating situation in Ukraine and the potential escalation of conflict in the Middle East, with all their consequences,” he added.
Israeli forces have pledged to respond to Iran’s large-scale airstrike on Israel on Saturday. World leaders have call to have a “maximum degree of restraint” after the weekend attack, amid concerns about an escalation of conflict in the Middle East.
Speculation that the ECB could soon start cutting interest rates emerged even as investors were already there have cut their bets about the Federal Reserve’s interest rate cuts. Traders now see a 20% chance of a Fed rate cut in June, after another print inflation shows that consumer prices are still rigid.
– CNBC’s Jenni Reid contributed to this report.
