With inflation in the euro zone now seemingly under control, investors have been betting that the ECB will slash borrowing costs from record highs this year, starting possibly as soon as March.
Lane openly entertained the thought of a “sequence of rate cuts” but he emphasised that crucial wage data would only become fully available by the ECB’s June 6 meeting — confirming the timeline exclusively reported by Reuters in December.
“By our June meeting, we will have those important data,” the Irish economist told Italian daily Il Corriere della Sera. “But let me emphasise, we do have other data that we will be looking at every week.”
Money markets currently price in at least 150 basis points worth of cuts this year, taking the interest rate that the ECB pays on banks’ deposits to 2.5%.
The ECB’s rate rise in September was in part “an insurance” against inflation coming back, Lane said, adding this would be taken into account when the time comes to ease policy.
But he also stressed that cutting rates too fast could fuel a new wave of inflation, forcing the ECB to then raise rates even more.
“A false dawn, too rapid a recalibration, can be self-defeating,” he said.
Source: Economy - investing.com
