Interest rate cuts will come slowly, European Central Bank policymaker: The general direction is clear

Several key policymakers of the European Central Bank said on the 27th that the current slowdown in the euro zone's inflation rate provides the European Central Bank with room to cut interest rates; although the general direction of interest rate cuts has been clear, the European Central Bank must take its time when easing monetary policy.

François Villeroy DeGaillot, president of the Banque de France, the French central bank, told Germany's Securities Journal on the same day that "unless something unexpected happens, the first interest rate cut in June is an established fact." However, the European Central Bank has broad scope for cutting interest rates since then. Room for discretion.

Philip Ryan, chief economist of the European Central Bank, said in a speech in the Irish capital Dublin on the same day that cutting interest rates too late may cause the inflation rate to fall below the target range, and the European Central Bank will be forced to "correctively" step up interest rate cuts.

Reuters reported that the European Central Bank is basically determined to announce an interest rate cut at its monetary policy meeting on June 6. The market's current discussion focus has shifted to the European Central Bank's subsequent interest rate cuts and frequency. The market currently generally expects at most one more interest rate cut this year, rather than the six rate cuts predicted at the beginning of the year.

The European Central Bank held a monetary policy meeting on April 11 and decided to continue to maintain the main refinancing interest rate, marginal lending rate and deposit mechanism interest rate at 4.50%, 4.75% and 4.00%. At the same time, it issued a signal to relax monetary policy: "If inflation dynamics , prospects and the intensity of monetary policy transmission and other factors increase confidence in achieving the medium-term inflation target, it is appropriate to lower the current interest rate level.”

The British "Financial Times" reported that investors expect the European Central Bank to cut the deposit mechanism interest rate by 25 basis points from 4.00% next week. This would make the ECB one of the first major central banks to cut interest rates.

According to reports, the central banks of Switzerland, Sweden, the Czech Republic and Hungary have cut interest rates this year. The U.S. Federal Reserve and the Bank of England are unlikely to cut interest rates in the near future, while the Bank of Japan is more likely to continue raising interest rates.

As chief economist, Ryan is responsible for formulating ECB interest rate decisions and submitting them to the monetary policy meeting for review. In an exclusive interview with the Financial Times on the 27th, he said that there is no need to worry about the negative consequences of the European Central Bank cutting interest rates before the Federal Reserve.

Some analysts have previously warned that if the European Central Bank cuts interest rates more frequently than the Fed, it may cause the euro to depreciate and import prices to rise, thereby pushing up inflation. Ryan pointed out that the ECB will consider "significant" exchange rate changes, but there is no significant change in the euro against the dollar at the moment. Conversely, expectations that the Fed will delay a rate cut push up U.S. bond yields, which in turn pulls up longer-term yields on European bonds. This means that any interest rate set by the European Central Bank will receive "extra tightening" due to the United States, and the European Central Bank may need to further cut short-term deposit rates to offset the impact of the United States.

According to Reuters, both Ryan and Degayo agreed that although data showed that wages in the euro zone have grown at a record rate recently, this is not particularly worrying and wage growth is expected to decrease.

Ryan believes that wage growth may not return to stability until 2026, which will lead to an increase in service industry prices and in turn bring "considerable" cost pressures. The European Central Bank will therefore need to maintain a "restrictive" monetary policy until 2025.