– by Balazs Koranyi
(Reuters) – Slovakia’s central bank chief, Peter Kazimir, does not see the European Central Bank (ECB) under pressure to quickly cut interest rates despite declining inflation.
“There is no reason to rush into cutting interest rates,” he said in an interview with the Reuters news agency published on Wednesday. “June would be my preferred date. April would surprise me, and March is out of the question.” Kazimir assumes that inflation will continue to ease in the 20-nation community. The statistics office Eurostat will publish a first estimate for inflation in February on March 1st.
In January, the inflation rate in the euro zone was 2.8 percent. As recently as autumn 2022, it was at times over ten percent. The ECB is aiming for 2.0 percent. The Euro Central Bank did not change the key interest rates at its interest rate meeting in January, as it did in December and October. The deposit rate that is relevant on the financial market and that financial institutions receive when they park excess funds with the central bank has been at a record level of 4.00 percent since September 2023.
“In the medium term, the process of disinflation in the level of headline inflation is moving much faster than we expected, but we cannot yet be sure about core inflation as wage developments are still unclear,” Kazimir said. The results of collective bargaining are crucial for this. Core inflation excludes the fluctuating prices for energy, food, alcohol and tobacco. This measure, which was 3.3 percent in January, primarily indicates underlying price trends. “All in all, we are on the right track, but we are not there yet,” said Kazimir.
KAZIMIR EXPECTS CHANGE IN COMMUNICATION
From the point of view of the Slovakian central bank chief, the timing of the interest rate turnaround is particularly important. “The timing is important because I prefer a smooth and steady cycle of monetary easing,” he said. “To do that, we have to be pretty sure about the first step.” In his view, the best option would be if the monetary authorities made the same progress every time. “I am pleased with the recent change in market-based interest rate expectations,” he noted. These are now much more realistic. The money market currently assumes a probability of 80 percent that the ECB will lower interest rates for the first time in June. For April it is currently only 35 percent, and for the interest rate meeting next week on March 7th it is only eleven percent.
Kazimir expects a change in the ECB’s communication soon, with which it will give the financial markets guidance regarding their course. “In March, I expect us to adapt our communications to the new realities of falling inflation.” However, he refuses to make any advance determinations. The Euro Central Bank should not make any predictions about interest rates – known in the trade as “forward guidance” – and should not commit itself again, according to the monetary authority.
(Edited by Frank Siebelt; Edited by Sabine Ehrhardt; If you have any questions, please contact our editorial team at [email protected] (for politics and economics) or [email protected] (for companies and markets).)