"Concerns Over Middle East Conflict..."... ECB Weighs June Interest Rate Cut

Differences in Plans After June... 3 to 4 Rounds of Reductions

Senior officials of the European Central Bank (ECB) are weighing the possibility of an interest rate cut in June, despite concerns over geopolitical risks originating from the Middle East.

According to CNBC on the 17th (local time), Robert Holzmann, Governor of the Austrian National Bank, stated at the International Monetary Fund (IMF) Spring Meetings, "At this stage, I think the biggest threat is geopolitical risk."

[Image source=AFP Yonhap News]

Governor Holzmann said, "As you can imagine, if a ship sinks in the Strait of Hormuz, oil prices could change, and we might need to reconsider our strategy." He also pointed to energy prices as the most important factor in curbing inflation, adding, "A sharp rise in oil prices would cause a significant shock."

International oil prices briefly surged amid concerns that Israel might retaliate against Iran's counterattacks, but as fears of escalation eased, prices fell about 3% that day.

Earlier, Olli Rehn, Governor of the Bank of Finland, also said, "The biggest risk comes from geopolitics," noting that "the worsening situation in Ukraine and the potential expansion of conflicts in the Middle East all have ripple effects."

However, ECB senior officials appear to be leaning toward an interest rate cut in June, contrasting with the U.S. Federal Reserve (Fed), which is moving toward delaying rate cuts.

On the same day, Joachim Nagel, President of the Deutsche Bundesbank, said the possibility of a rate cut in June is increasing. Nagel stated, "The likelihood of a rate cut in June is growing, but there are still some points to be cautious about." He added, "Core inflation remains high, and service inflation is also elevated. We will receive new forecasts at the June meeting, and if there is confidence that inflation is indeed falling and the 2025 target will be met, the likelihood of a rate cut will be high."

The European Union (EU) statistical authority announced that the finalized Consumer Price Index (CPI) for March rose 2.4% year-on-year, a 0.2 percentage point slowdown compared to the 2.6% increase in the previous month. Major foreign media analyzed that this figure supports the ECB's June rate cut.

Core inflation, excluding volatile items such as food, energy, alcohol, and tobacco, was 2.9%, down 0.2% from the previous month. The service sector inflation remained unchanged at 4.0%.

Regarding wage pressures in the Eurozone and oil prices, it was explained that "there is still wage growth momentum in Germany, but overall it is still on a downward trend," and "the recent rise in oil prices is due to 'uncertainty' in a highly volatile environment compared to last year."

Additionally, Mario Centeno, Governor of the Bank of Portugal, said, "It is now time to change the monetary policy cycle," adding, "The June rate decision will be very important." The day before, Christine Lagarde, ECB President, stated, "We are observing a disinflation process moving according to our expectations," and added, "We need a bit more confidence in the consumer price decline process, but if it moves according to expectations without major shocks, we are heading toward a time to ease monetary policy."

However, there are differing views on the exact timing of the start of rate cuts and subsequent moves. Piero Cipollone, ECB Monetary Policy Committee member, said, "We will receive data in June and July, and if that data confirms that inflation is heading toward the target, it would be appropriate to remove some restrictions (rates)."

Yanis Stournaras, Governor of the Bank of Greece, forecasted 25 basis point rate cuts in both June and July, and mentioned that there could be two additional rate cuts within the year, potentially totaling up to four cuts.

Gediminas ?imkus, Governor of the Bank of Lithuania, said on the 15th, "There is more than a 50% chance of at least three rate cuts this year," adding, "There is also a possibility of a rate cut in July. The July decision is important for setting the trajectory."