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Irish Examiner
3 days ago
- Business
- Irish Examiner
Economists warn ECB to avoid delaying last two rate cuts
The European Central Bank will lower interest rates twice more, according to a Bloomberg survey, but respondents warned it shouldn't wait too long between those moves or investors will conclude that its easing campaign is already over. Respondents predict quarter-point reductions on June 5 and at September's meeting, when new quarterly forecasts should shed more light on the effects of US President Donald Trump's reordering of global trade. That would bring the deposit rate to 1.75%, where the poll sees it settling through the end of 2026. With inflation near 2%, Belgium's Pierre Wunsch and Greece's Yannis Stournaras — who hail from either end of the hawk-dove spectrum — have each discussed the merits of pausing soon. As well as buying time to digest the jolts from Trump's tariffs, a timeout would signal ECB loosening is approaching an end, without formally committing. 'Further easing is still on the cards this year but most likely not before autumn,' said Nerijus Maciulis, chief economist at Swedbank. After June's cut, 'the Governing Council will have a full three months to assess the impact of changes in US trade policy.' Sitting out one or more meetings before continuing to trim borrowing costs would risk communication challenges for President Christine Lagarde that grow with time, the poll showed. Almost 30% of analysts say the ECB can hold just once before markets conclude rates are at a floor. A quarter reckon it can afford a pause stretching for two meetings. The ECB is wary of confusing investors. An account of its last policy meeting revealed that officials saw the need 'to be a beacon of stability' and not cause 'more surprises in an already volatile environment, which might amplify market turbulence.' Asked at which point the ECB would acknowledge that it's finished lowering rates, most survey respondents said it won't. 'The ECB wants to keep all options open,' said Ulrike Kastens, a senior economist at DWS International. 'Although the disinflationary trend is well on track in the short term, the ECB is likely to reiterate that the medium-term outlook for inflation is uncertain.' A stronger euro, cheaper oil and softer economic growth — consequences of the trade uncertainty — suggest inflation will reach the ECB's target sooner than previously thought. But risks including supply-chain disruptions and retaliatory tariffs by the European Union could revive price pressures down the line. Euro-area consumers are showing signs of concern. Their expectations for inflation over the next 12 months ticked higher in both March and April. Analysts predict the ECB's new outlook next week will largely confirm the one presented in March, with weaker inflation this year and slower growth in 2026. But they also warn the forecasts won't fully account for the trade mess the euro zone could find itself in. 'The biggest challenge will be how to deal with ongoing tariff uncertainty,' ING's Carsten Brzeski said. 'The ECB needs to wait until the end of the 90-day pause before it can incorporate tariffs into its projections. This means that, for now, only the disinflationary impact from a stronger euro and lower oil prices will dominate the rate decision.' The alternative outcomes that the ECB will publish alongside its baseline may help determine the best course of action. But the fact that such scenarios are being prepared at all — having not been used since the pandemic and Russia's attack on Ukraine — underscore the ever-changing backdrop with which policymakers are grappling. 'After several months in which ECB policy has been very predictable, the summer could present bigger challenges,' said Fabio Balboni, a senior euro-zone economist at HSBC. 'An increasing divergence seems to emerge within the Council on what's next.' In addition to rates, some officials want to discuss the implications of quantitative tightening as maturing bonds roll off the ECB's balance sheet. Executive Board member Piero Cipollone has said rate cuts, which ease financing conditions, should 'compensate' for QT. Only about a quarter of respondents share his concern and say the ECB should halt the policy — either immediately or once reductions in borrowing costs are over. Traders are betting on at least one more cut this year beyond June, fully pricing it will arrive by October with a 30% chance of further reduction by December. A quarter of economists, however, see next week's rate move as the end of the line. 'The ECB will need to send a message that balances the baseline that the cutting cycle is essentially done, while keeping its options open for any negative shocks that may materialize,' said Bas van Geffen, senior macro strategist at Rabobank. 'That's a tightrope to walk, with the markets pricing further cuts and still biased to look for lower rates.' Bloomberg.
Yahoo
3 days ago
- Business
- Yahoo
Economists Warn ECB to Avoid Delaying Over Last Two Rate Cuts
(Bloomberg) -- Supply Lines is a daily newsletter that tracks global trade. Sign up here. NYC Congestion Toll Brings In $216 Million in First Four Months The Economic Benefits of Paying Workers to Move Now With Colorful Blocks, Tirana's Pyramid Represents a Changing Albania NY Wins Order Against US Funding Freeze in Congestion Fight NY Congestion Pricing Is Likely to Stay Until Year End During Court Case The European Central Bank will lower interest rates twice more, according to a Bloomberg survey, but respondents warned it shouldn't wait too long between those moves or investors will conclude that its easing campaign is already over. Respondents predict quarter-point reductions on June 5 and at September's meeting, when new quarterly forecasts should shed more light on the effects of US President Donald Trump's reordering of global trade. That would bring the deposit rate to 1.75%, where the poll sees it settling through the end of 2026. With inflation near 2%, Belgium's Pierre Wunsch and Greece's Yannis Stournaras — who hail from either end of the hawk-dove spectrum — have each discussed the merits of pausing soon. As well as buying time to digest the jolts from Trump's tariffs, a timeout would signal ECB loosening is approaching an end, without formally committing. 'Further easing is still on the cards this year but most likely not before autumn,' said Nerijus Maciulis, chief economist at Swedbank. After June's cut, 'the Governing Council will have a full three months to assess the impact of changes in US trade policy.' Sitting out one or more meetings before continuing to trim borrowing costs would risk communication challenges for President Christine Lagarde that grow with time, the poll showed. Almost 30% of analysts say the ECB can hold just once before markets conclude rates are at a floor. A quarter reckon it can afford a pause stretching for two meetings. The ECB is wary of confusing investors. An account of its last policy meeting revealed that officials saw the need 'to be a beacon of stability' and not cause 'more surprises in an already volatile environment, which might amplify market turbulence.' Asked at which point the ECB would acknowledge that it's finished lowering rates, most survey respondents said it won't. 'The ECB wants to keep all options open,' said Ulrike Kastens, a senior economist at DWS International. 'Although the disinflationary trend is well on track in the short term, the ECB is likely to reiterate that the medium-term outlook for inflation is uncertain.' A stronger euro, cheaper oil and softer economic growth — consequences of the trade uncertainty — suggest inflation will reach the ECB's target sooner than previously thought. But risks including supply-chain disruptions and retaliatory tariffs by the European Union could revive price pressures down the line. Euro-area consumers are showing signs of concern. Their expectations for inflation over the next 12 months ticked higher in both March and April. Analysts predict the ECB's new outlook next week will largely confirm the one presented in March, with weaker inflation this year and slower growth in 2026. But they also warn the forecasts won't fully account for the trade mess the euro zone could find itself in. 'The biggest challenge will be how to deal with ongoing tariff uncertainty,' ING's Carsten Brzeski said. 'The ECB needs to wait until the end of the 90-day pause before it can incorporate tariffs into its projections. This means that, for now, only the disinflationary impact from a stronger euro and lower oil prices will dominate the rate decision.' The alternative outcomes that the ECB will publish alongside its baseline may help determine the best course of action. But the fact that such scenarios are being prepared at all — having not been used since the pandemic and Russia's attack on Ukraine — underscore the ever-changing backdrop with which policymakers are grappling. 'After several months in which ECB policy has been very predictable, the summer could present bigger challenges,' said Fabio Balboni, a senior euro-zone economist at HSBC. 'An increasing divergence seems to emerge within the Council on what's next.' In addition to rates, some officials want to discuss the implications of quantitative tightening as maturing bonds roll off the ECB's balance sheet. Executive Board member Piero Cipollone has said rate cuts, which ease financing conditions, should 'compensate' for QT. Only about a quarter of respondents share his concern and say the ECB should halt the policy — either immediately or once reductions in borrowing costs are over. Traders are betting on at least one more cut this year beyond June, fully pricing it will arrive by October with a 30% chance of further reduction by December. A quarter of economists, however, see next week's rate move as the end of the line. 'The ECB will need to send a message that balances the baseline that the cutting cycle is essentially done, while keeping its options open for any negative shocks that may materialize,' said Bas van Geffen, senior macro strategist at Rabobank. 'That's a tightrope to walk, with the markets pricing further cuts and still biased to look for lower rates.' YouTube Is Swallowing TV Whole, and It's Coming for the Sitcom Mark Zuckerberg Loves MAGA Now. Will MAGA Ever Love Him Back? Millions of Americans Are Obsessed With This Japanese Barbecue Sauce Inside the First Stargate AI Data Center How Coach Handbags Became a Gen Z Status Symbol ©2025 Bloomberg L.P.
Irish Times
5 days ago
- Business
- Irish Times
ECB hawk calls for rate cut pause until September amid trade tensions
The European Central Bank should pause further interest rate cuts until at least September, one of its most hawkish policymakers has said, warning that 'we should keep our powder dry' given the simmering European Union -US trade war. Austrian central bank governor Robert Holzmann said he saw 'no reason' for the European Central Bank to lower rates at its June and July meetings. 'Moving [interest rates] further south would be more risky than staying where we are and waiting until September,' Mr Holzmann said, arguing that a further rate cut at this stage was likely to have 'no effect' on economic activity in the euro zone. Mr Holzmann's hawkish comments point to disagreement among ECB rate setters, as they weigh how to approach Donald Trump's trade war ahead of their next meeting on June 5. READ MORE The US president last week threatened to impose 50 per cent tariffs on imports from the European Union (EU) from June 1st but has since agreed to delay until July 9th to allow time for talks with the bloc. Fellow ECB hawk Isabel Schnabel warned earlier this month that the trade conflict could fuel inflation and limit the central bank's room for manoeuvre. [ Why ECB's latest interest rate cut was a no-brainer Opens in new window ] In contrast, Belgium's central bank governor Pierre Wunsch – previously also known for his hawkish views – earlier this month called for the ECB to be ready to cut rates to 'slightly below' 2 per cent this year. Both Mr Wunsch and Ms Schnabel spoke before Trump issued his 50 per cent tariff threat on Friday, which marked a significant escalation in the trade feud. Policymakers in Frankfurt have lowered their key deposit facility rate seven times since last June, bringing it down from 4 per cent to 2.25 per cent at their previous meeting in April. 'We're at a critically low level of housing stock' for buyers and renters Listen | 33:06 Given that euro zone inflation is hovering close to the ECB's medium-term target of 2 per cent while growth forecasts are bleak, investors and analysts expect another quarter-point cut at the central bank's June meeting. Markets have also priced in at least one further cut later this year. Mr Holzmann argued that economic activity in the currency area was being held back by 'extreme uncertainty' rather than restrictive monetary policy. 'Key economic decisions by market participants are delayed and not taken. [ ... ] People want to wait.' In such a context, a reduction in interest rates would not do much – if anything, he argued. [ Further ECB rate cut in June all but guaranteed Opens in new window ] The Austrian central bank governor, whose term will expire later this year, also said that borrowing costs in the euro area have come down so much over the past year that they were no longer slowing down economic activity and were potentially even stimulating growth. He views the 'neutral' rate of interest – where borrowing costs are doing neither – at somewhere between 2.5 per cent and 3 per cent. 'Most if not all of the recent estimates on [the neutral rate of interest] for Europe point to quite a strong increase since the beginning of the year 2022. We are already at least at the neutral level.' Germany's planned €1 trillion debt-funded spending plans were another reason for the ECB to maintain 'a steady hand', Mr Holzmann said. If implemented by Germany's new chancellor, Friedrich Merz, they should boost economic growth in the currency area. Mr Holzmann described Mr Merz's plan as 'a fiscal shock to Europe, which will help us to turn the current development around'. While Mr Holzmann acknowledged that 'many' of the 25 other members of the ECB governing council were 'a bit' more dovish than him, he stressed that he did not feel 'isolated at all', arguing that 'a number of people' on the decision making body were also 'sceptical' about additional interest rate cuts. – Copyright The Financial Times Limited 2025
Bloomberg
20-05-2025
- Business
- Bloomberg
ECB's Wunsch Says Economy May Need Some Support From Rates
European Central Bank Governing Council member Pierre Wunsch said the euro-zone economy may need interest rates at 'mildly supportive' levels to ensure inflation doesn't fall below target after a series of shocks. With US tariffs denting confidence, strengthening the euro and sending energy costs lower, price pressures will probably turn out weaker than previously anticipated, the Belgian central-bank chief said Tuesday in an interview. Market bets for a deposit rate of just below 2% at year-end are therefore 'reasonable,' he said.
Reuters
18-05-2025
- Business
- Reuters
ECB's Wunsch says central bank may need to cut rates below 2%, FT reports
May 18 (Reuters) - The European Central Bank may need to cut interest rates to "slightly below" 2% as global trade tensions pose downside risks to inflation and growth, Belgium's central bank governor, Pierre Wunsch, told the Financial Times in an interview published on Saturday. Wunsch, previously known for his hawkish stance, told the FT that recent shocks and uncertainty could justify a mildly supportive monetary policy, including a potential cut below the current 2.25% deposit rate. Wunsch sees no case for a larger, half-point cut in the foreseeable future, the FT quoted him as saying. He also said that developments since U.S. President Donald Trump's tariff announcements on April 2 had created clear "downside risks to inflation" in the euro zone, along with additional threats to economic growth. Wunsch told the FT that the euro zone might be exposed to "negative [economic] shock in the short term" that might be followed by a "positive shock in 2026 and 2027." In an interview with the FT in February, Wunsch had warned against "sleepwalking" into excessive interest rate cuts, urging caution as the ECB considered further reductions. Markets now see a roughly 90% chance of an ECB rate cut on June 5, but have priced in only one additional easing over the rest of the year, suggesting that the ECB's deposit rate could bottom out at 1.75%. Wunsch said he was "not shocked" by such forecasts and was open to contemplating further easing, according to the report.
