The ECB opened the door to lower rates at its September meeting

2024-08-22 14:14:41

Him European Central Bank (ECB) leave the door open to a new one interest rate cut at its July meeting. The minutes of the meeting published today said The Eurobank will debate in September a possible reduction based on the evolution of prices this summerafter in July all the members of his Board of Directors agreed to keep them at 4.25% because inflation “only falls gradually.”

As made clear in the minutes of the Board of Directors meeting of July 18, the meeting of September 12 “We widely see it as a good time to re-evaluate the level of monetary policy tightening”which opens the door to a possible rate cut. However, they emphasized the need to guarantee that inflation will return to the 2% target and that they will keep rates “restricted as long as necessary to achieve that target.”

In September, the ECB will have additional data for July and August, national account statements for the second quarter, including compensation for staff, profits and activity, and an update of financial data.

The evolution of currency values ​​until July brought those responsible for monetary policy in the Eurozone to a “careful” decisionthat is “essentially justified” by uncertainties on the evolution of salaries, profits, production and the addition of services. Regarding salaries, progress in negotiations in the Eurozone has arrived 3.55% year-over-year in the second quarter of 2024which shows a reduction compared to the 4.74% increase in the first three months of 2024. The decline, for analysts, makes the rate in September more.

Knowledge

The Governing Council, the minutes say, “may be able to be patient and wait for more data to confirm that the return is on a real path.” He added that the “cautious” approach would also allow the Council to respond by following a more gradual approach of reducing monetary policy rates if inflation is more persistent than expected.

The committee members then indicated that inflation expectations are “more fragile than usual” although they are recognize the need for “balancing”, so as not to unnecessarily damage the economyKeeping rates at a restrictive level for too long.

At the meeting, the German representative on the ECB Executive Board, Isabel Schnabel, noted that since the previous meeting, at the beginning of June, business markets have moved in response to political news, which caused some changes, and to the US . additional data, which turned out to be weaker than expected.

On the other hand, the show early elections in France delay investors’ risk appetite. However, the resulting increase in volatility in some market segments is contained and temporary, so there are no signs of systemic stress or fragmentation. In fact, risk premiums increased “moderately” and the euro exchange rate recovered “quickly.” Furthermore, financial conditions in the euro area have not changed much, with favorable market conditions.

At this point, the risk appetite of investors in the euro area has recovered “rapidly” after a short period of decline, and at the time of the meeting is better than the levels observed at the beginning of the year.