ECB must hold off on rate-cut talk beyond June, Kazimir says

Euro zone inflation is retreating, so interest rates can come down in June, but the path beyond that is far too uncertain for policymakers to make any subsequent commitments, European Central Bank policymaker Peter Kazimir said on Monday.

The ECB opened the door to a June rate cut last week but the debate is already moving to what happens in July, with some already making a case for a follow-up rate cut.

“June is an opportunity to recalibrate our approach in the light of improving economic conditions,” Kazimir, Slovakia’s central bank chief, said in an opinion piece. “Let’s be clear: We are not pre-committing to a definite path post-June.”

Markets now see 82 basis points of rate cuts this year, so at least two moves after June, with the focus on the September and December meetings when the ECB also publishes new economic projections.

Kazimir argued that the decline in inflation is persistent and the outlook is encouraging, even if policy still needs to remain tight for some time.

“Even after the first rate cut, our monetary policy will remain restrictive; it needs to,” Kazimir added.

Kazimir warned that the economy is prone to shocks so the ECB must maintain flexibility and make decisions meeting by meeting without guiding investors too far ahead of its moves.

For now, however, even the long-awaited economic recovery is starting to take shape and should accelerate in the second half of the year, he added.

“The notion of easing doesn’t imply a commitment to specific future cuts but rather an openness to respond in kind, should the economic data advocate for it,” Kazimir said.
Source: Reuters (Reporting by Balazs Koranyi; Editing by Hugh Lawson)