ECB President: "Interest Rate Cuts Soon If No Major Shock... Monitoring Oil Prices Continuously"

The European Central Bank (ECB) is widely expected to cut its key interest rate in June, and on the 16th (local time), ECB President Christine Lagarde said, "If disinflation (a slowdown in inflation) proceeds as expected and there are no major shocks, we are moving toward a period of limited monetary policy easing."

[Image source=Reuters Yonhap News]

In an interview with US CNBC on the same day, President Lagarde said, "we need to have more confidence in the disinflation process," but predicted that "this will happen within a fairly short period of time." The ECB on the 11th kept the key interest rate steady at 4.50% per annum and stated, "If we are confident that inflation is continuously converging to the 2% target, it would be appropriate to lower the restrictive level of monetary policy."

In response, the market is placing weight on starting interest rate cuts in June and lowering rates by up to 77 basis points (1bp = 0.01 percentage points) within the year. President Lagarde reiterated her stance that she would judge based on economic indicators, saying, "We have said that we will not set a specific interest rate path in advance" regarding the timing and extent of further rate cuts.

However, the possibility of additional oil price increases due to heightened tensions in the Middle East recently is expected to be the final variable. President Lagarde said, "We will closely monitor oil price movements," but assessed that "the oil market reaction was relatively moderate even after Iran's airstrikes on Israel."

Other ECB officials are also treating the June rate cut as a foregone conclusion. Fran?ois Villeroy de Galhau, Governor of the Bank of France, said on the same day, "If there are no major shocks or surprises, we should decide on the first rate cut in early June."

While expectations for interest rate cuts by the US Federal Reserve (Fed) are retreating, there are also reactions that it would not be a problem for the ECB to cut rates before the Fed. President Lagarde said at a press conference on the 11th, "We rely on data, not the Fed."