According to a comment from Robert Holzmann, a member of the ECB Governing Council, the bank may cut its main interest rate before the US Federal Reserve does.

Given that the European economy was expanding more slowly than the American one, Holzmann told the Austrian newspaper Kronen Zeitung, “Europe could cut interest rates before the U.S.”

The 75-year-old governor of the Austrian National Bank, Holzmann, also stated to the newspaper that he has no intention of running for office again. He is expected to serve until August 31, 2025, at the latest.

The ECB’s Governing Council was currently debating when rate reduction might occur, according to Holzmann.

“From today’s perspective, I’d say: interest rate cuts are likely to come. When will depend largely on what wage and price developments look like by June,” he added.

Holzmann stated that the greater the wage agreements in Europe, the greater the opportunity to minimise borrowing costs.

 A few  days ago, ECB policymaker Francois Villeroy de Galhau had said that this spring, the Central Bank is expected to begin with a “moderate” interest rate drop, which should occur regardless of the timeline set by the U.S. Federal Reserve. 

Rate cuts have gained traction among ECB policymakers, and a June meeting appears to be the most likely timing for action (though an April meeting is also scheduled).

During a speech at Paris Dauphine University, Villeroy stated that whether or not this cut happened in April or June was not of “existential importance”.

“Since monetary policy takes effect with a lag, we run the risk of falling behind the curve if we wait too long,” Villeroy said.

He continued by saying that the ECB would run the risk of having to reduce interest rates even further and might reach the effective lower bound of rate cuts, at which point they would no longer be able to support the economy, if inflation consistently fell short of the 2% target.

In addition, Villeroy, who holds the dual role of governor of the French central bank, compared the beginning of monetary policy loosening to purchasing insurance against a rough economic landing.

He said that the ECB did not absolutely need to lower rates further at each meeting of the governing council after a first “moderate cut,” but it should keep the option open.

The Reuters survey conducted from March 25–28 found that all 77 economists predicted the ECB to maintain the current deposit rate of 4.00% on April 11. 68 respondents, or around 90% of the sample, predicted that the first cut would occur in June.

(Adapted from Reuters.com)