FRANKFURT: The European Central Bank should sit out the summer before contemplating another interest rate cut as inflation is far from defeated and price pressures could resurface, ECB policymaker Peter Kazimir said in a blog post on Monday.
The ECB cut rates from a record high on Thursday but made no commitment about any future move and markets keep dialling back their rate cut expectations, anticipating little more than just one more cut this year.
“We can afford to enjoy the summer without hurrying into the decision,” Kazimir, an outspoken conservative said. “By autumn, we’ll have a lot of new information and data about the economy’s performance, the labour market situation, and economic outlook.
“September will be a pivotal month,” Kazimir said. Although the ECB said the July meeting would be open, policymakers speaking on background have said that another cut then is unlikely.
Part of the caution is due to fears that inflation could still rise again, particularly after recent wage data showed continued big increases in earnings after years of real declines for incomes.
“There’s still a non-negligible risk of resurfacing inflationary pressures linked to global events or rushed rate cuts,” Kazimir said.
ECB starts cutting rates even as inflation fight continues
“The economic situation in the eurozone remains fragile, and the ‘inflation beast’ isn’t beaten yet.”
The ECB expects inflation to remain choppy for the rest of the year with some ups and downs before it resumes a downward path next year, falling back to 2% only at the end of 2025.
“This decline is going to be bumpy, but we’re heading toward the target,” Kazimir added.
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