Germany’s financial policymakers offered a curious metaphor for the ECB interest rates. They compared the cycle of the ECB monetary easing to descending a mountain. The key issue now is to devise the perfect timing of rate cuts and not to tumble down the slope.
According to Bundesbank Governor Joachim Nagel, it is important not to rush with further decreases in the ECB refinancing rate. The EU regulator has to be cautious after the recent interest rate cut, the first in the past five years.
“I don't see us on a mountain top from which things will inevitably go down,” Nagel noted, comparing the current situation to being on a mountain ridge. “Rather, I see us on a ridge where we still have to find the right point for the further descent.” The Bundesbank leader believes that further decisions by the regulator on interest rates will depend on statistical data.
Recently, the ECB lowered the key interest rate as well as the rates on marginal lending and the deposit facility to 4.25%, 4.5%, and 3.75%, respectively. Interest rates have been cut for the first time since 2019. Previously, the European regulator had kept them at peak levels since September 2023 to curb rampant inflation and bring it down to the annual target of 2%.
Economist David Powell reckons that the hawkish policymakers in the ECB are trying to prevent another rate cut, which could happen in July this year. ECB President Christine Lagarde stated that further policy decisions would be adjusted to incoming data. David Powell noted that this indicates a possible pause in the monetary easing cycle. The analyst believes the regulator will wait for new reports on corporate profits and wages, which will be available in September and will respond to the new economic data.