The case for another European Central Bank (ECB) interest rate cut is gaining strength, according to ECB board member Piero Cipollone, even as some members of the rate-setting Governing Council remain cautious.
Since last June, the ECB has reduced interest rates six times but has given few indications about its next steps following the latest reduction in March, emphasizing the need for the bank to guide market expectations amidst uncertainty.
Cipollone noted that economic conditions have changed since the March meeting, suggesting that inflation may decrease more rapidly than anticipated. He highlighted, "Key issues have arisen that have strengthened the arguments in favor of continuing to lower rates." He believes the ECB is likely to achieve its inflation target sooner than previously projected. From his perspective, if current trends are confirmed, there is room for further easing of monetary policy.
Similarly, the Greek central bank chief argued that various indicators point toward a potential rate cut in April. In contrast, Ireland's Gabriel Makhlouf, seen as a centrist on the 26-member Governing Council, urged caution. He underscored the need for careful consideration of monetary policy adjustments given that inflation targets have not yet been met and in light of exceptional global events that could directly impact inflation.
Despite this, Makhlouf expressed optimism about inflation moving in the right direction, stating he was not overly concerned about the exact timing of reaching the target.
Cipollone also mentioned recent declines in energy prices since the March 6 meeting, an appreciation of the euro, and rising real rates, all contributing to a quicker fall in inflation. He pointed out that if the United States were to impose tariffs on European exports, it could negatively affect demand, further reinforcing the downward trend in inflation. Additionally, trade tensions between China and the United States might cause China to redirect its products to the European market, increasing downward pressure on prices.
Financial markets currently reflect a roughly 60% chance of a rate cut in April, with a move expected by June fully priced in. Investors are also anticipating another cut, likely in December, bringing the ECB's deposit rate to 2% by the end of 2025.