DAVOS: The European Central Bank could start cutting interest rates this summer, president Christine Lagarde said Wednesday, while stressing that any such move would depend on the latest economic data.
The ECB began hiking borrowing costs at an historically fast pace in July 2022 to tame red-hot inflation after Russia’s war in Ukraine sent energy costs soaring.
Easing inflation and a darkening economic picture since then led the ECB to freeze borrowing costs at its last two meetings, prompting speculation about when the Frankfurt institute might start cutting rates.
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In an interview with Bloomberg television in Davos, Lagarde was asked to comment on hints by ECB governing council members that cuts could come in the summer.
“I would say it’s likely too,” Lagarde said.
“But I have to be reserved because we are also saying that we are data-dependent and that there is still a level of uncertainty and some indicators that are not anchored at the level where we would like to see them.”
Markets have been pricing in rate cuts from as early as April, but ECB governors have been at pains to tamp down those expectations in recent weeks.
Eurozone inflation stood at 2.9 percent in December, down significantly from a double-digit peak in late 2022, but still above the ECB’s two-percent target.
Lagarde said inflation was “on the right path” but it was too early to declare victory.
She cited energy prices and possible supply chain disruptions as key risk factors.
The ECB was also keeping a close eye on wage negotiations in the eurozone as well as companies’ profit margins for their potential “serious impact” on the bank’s battle against inflation, she added.
“We will know a lot more, probably in April, May,” Lagarde said, once wage agreements have been concluded.
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