Many central bank policymakers say the central bank is cautious and does not want to ease monetary policy too quickly even though inflationary pressures have not yet fully subsided. Inflation in the services sector has hovered around 4% for the past few months, and geopolitical risks such as conflict in the Middle East can suddenly have a huge economic impact.
There is debate among European policymakers about how many rate cuts are possible and by how much. The IMF has recommended that the ECB cut interest rates by 25 basis points every quarter until September 2025, which would cut the deposit rate from 4% to 2.5%.
Investors are betting that the European Central Bank will cut interest rates three times this year at its meetings in June, September and December, when it releases new quarterly forecasts on the economy and inflation.
“I have no big objection to the recent market pricing,” said Martins Kazaks, governor of Latvia’s central bank. He said that while quarterly forecasts are important, decisions can be taken in meetings without quarterly forecasts.
“Obviously, what’s happening in terms of the stickiness of inflation in the US raises more questions, but in my view, inflation is still going,” he added. He added that “unless something dramatic happens” the ECB will cut interest rates in June.
Bank of Portugal Governor Mario Centeno said the size of the rate adjustment was “an open question.”
“I prefer small steps to big steps and then stop,” because that sends a clear message to investors and is more conservative in the face of economic uncertainty, he said. “But there is nothing stopping us from speeding up first and then slowing down“
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