Eurozone inflation is moving back towards its 2% target but the European Central Bank is seen as still needing more confirmation before it can cut rates, two of the country's most influential policymakers said on Thursday.
The ECB has kept interest rates unchanged at a record high since September and has dismissed talk of a wider rate cut among investors, arguing that key data, particularly on wages, is still insufficient.
"The latest data confirms the ongoing process of disinflation and is expected to be gradually lower throughout 2024," said ECB President Christine Lagarde. "The current disinflation process is expected to continue, but the Governing Council needs to be confident that it will sustainably reach our 2% target," Lagarde added, echoing the ECB's message.
That message was echoed by Spain's central bank Governor Pablo Hernandez de Cos, who said the next step would be a rate cut but for now there was no panic.
Said de Cos in Madrid. "We have not clarified when that will happen, I think there is still some time for that, but it is important to emphasize that the ECB's target is the 2% target."
If the ECB moves too quickly, inflation could rise again which may force the ECB to tighten policy, Lagarde warned.
The market now sees a 113 basis point rate cut this year, down from 150 basis points just a few weeks ago.
The European Commission on Thursday cut its eurozone GDP growth forecast to just 0.8% from 1.2%, which was only a marginal improvement on last year's 0.5% increase. Still, the ECB continues to push back on rate-cutting bets, fearing that relatively fast nominal wage growth will push up inflation as workers look to replace lost income to rapid price growth.
"Wage growth continues to be strong and is expected to be an increasingly important driver of inflation dynamics in the coming quarters, reflecting the tight labor market and workers' demands for inflationary compensation," Lagarde said.
