ECB’s June rate cut not necessarily followed by others, Nagel says

Euro zone inflation could still prove stubborn so a European Central Bank rate cut in June will not necessarily be followed by further policy easing, Bundesbank President Joachim Nagel said on Wednesday.

The ECB has essentially promised a rate cut at its next policy meeting on June 6 but policymakers are still debating the rate path beyond that and signals from the U.S Federal Reserve that its own easing could be delayed clouds the outlook further.

Nagel offered a nod to the rate cut in June, which has not been challenged by any policymaker and has been described by some as a “fait accompli” but said he remained worried about price growth.

“Such a step would not necessarily be followed by a series of rate cuts,” Nagel said in a speech in Berlin. “Given the current uncertainty, we cannot pre-commit to a particular rate path.”

The comments are among the most cautious among policymakers, many of whom say that further policy easing was still more likely, even if they were not ready to commit to a particular schedule.

Nagel said he was especially worried about services inflation, which is still driven by continued strong wage growth and has proven more persistent than goods inflation.

“I am not fully convinced yet that inflation will actually return to target in a timely and sustained manner,” Nagel added.
Source: Reuters (Reporting by Balazs Koranyi; editing by Jason Neely)