Christine Lagarde delays first ECB interest rate cut until summer

He made it clear that there would be no movement until the summer. In an interview with Bloomberg in Davos, Lagarde assured that central banks and their policies are “on the right track” in the battle to control consumer prices and that the European Central Bank could reach a consensus in the governing council to cut interest rates in the summer. “I would say that is also likely… but I have to be cautious because we are also saying that we are dependent on data and that there is still a level of uncertainty and some indicators that are not locked in at the level we would like them to be.” see,” announced the possibility of the first installation in the summer.

The euro responded to these statements with a moderate decline. Just six days ago, Lagarde limited herself to indicating that the first fall would not occur until inflation was stable at 2%, and inflation was not expected to fall to 2% on a sustained basis in the short term. Some analysts are even talking about 2025.

But the recession facing the eurozone, where Germany already has negative indicators, is weighing on the minds of eurozone central bankers. “I have spoken to some of them, they have recently spoken publicly, and each has their own point of view, which I completely respect,” Lagarde said, adding that “in general we are reaching a point of agreement on the decisions that we are making.” “Based on data: some of them have their own internal or national data, they have their own forecasts for rates and inflation, which vary from country to country.

As part of this diversity of opinion, Lagarde wanted to emphasize that some consensus is being created, but she also warned about the illusions that investors are creating with their movements, so one could interpret that market rates indicating that rate cuts are imminent are not worth taking into account. “It will not help our fight against inflation if expectations are too high compared to what can happen,” the ECB president explained, referring to the fact that markets have valued aggressive policy since December. rate cut path through 2024, in line with messages from US Federal Reserve President Jerome Powell, so that the first rate cut will occur in April, with 150 basis points of rate cuts occurring throughout this year.

ECB chief economist Philip Lane already warned over the weekend against rates that include a recalibration of monetary policy and highlighted the evolution of wages, noting that the governing council will not have the most data available until the end of April. that is, just in time for the June meeting.

Salary data

Two so-called falcons, Robert Holzmann and Joachim Nagel, are already warning that early wage data points to relatively high growth. The head of the Bundesbank is slowing down and stresses that it is too early to talk about cutting rates when salaries remain “a big unknown.” Gediminas Simkus, governor of the Central Bank of Lithuania, also undermined investors’ exaggerated optimism that rates would be cut soon: “If there are no surprises that change the data and forecasts, I am optimistic about a rate cut this year. ” he said on Tuesday in Vienna, adding: “But I am much less optimistic than the markets about a rate cut in March or April.”

As for the Governor of France, François de Villeroy, he noted that the ECB’s next step should be to reduce the rate this year, but did not want to clarify the moment, and the Portuguese Mario Centeno is the only one who advocates putting forward this rate. cuts, arguing that he is not concerned about the wage agreements being negotiated in his country. Of course, both Lagarde and Lane suggested that once the ECB’s monetary policy cycle changes, we can expect a “sequence of cuts”.