Reports from insiders state that the majority of European Central Bank (ECB) decision-makers are favouring a preliminary reduction in interest rates this June, though a minority prefers an earlier start. Some informal suggestions include a further reduction to be actioned in July to sway those favouring an immediate cut. These insights emerged following the bank’s policy meeting last Thursday, where ECB president Christine Lagarde indicated that a likely reduction in interest rates could coincide with the bank’s assembly on June 6, post the release of crucial wage data.
While no formal agreement was reached regarding these proposals, these discussions serve to maintain harmony in the council’s discourse. This approach is not novel, reminiscent of the bank’s tactics in December 2022 when it lessened the escalation of rate hikes to attract those favouring a significant surge.
The financial market now envisages four cuts in the ECB’s interest rate for this year, beginning in June, suggesting deductions for all occurrences barring one, between June and December.
However, insiders also warned that the dates of these initial moves would impact the execution of a forthcoming operational framework. To be announced on March 13th, the new system could necessitate the reduction of the gap between the 4% deposit rate and 4.5% primary refinancing rate. However, some council members express concerns that this technical modification could potentially be mistaken for a shift in monetary policy. As a result, these policymakers are opting to delay its roll-out until a genuine alteration in interest rates is due.
According to insider reports, changes to the minimum mandatory reserves for banks, previously suggested by certain officials, are not included in the recommendations – Reuters.