The Rate Reduction Series Has Started! Will the ECB Continue Without a Break?


The European Central Bank (ECB) should continue to balance economic growth in light of persistent inflationary pressures and wait until uncertainty subsides before making further rate cuts, the ECB's chief economist, Philip Lane, said on Tuesday.

The ECB cut interest rates last Thursday for the first time since 2019 but refrained from making promises to follow through on the move, although ECB President Christine Lagarde suggested it was the first step in a series of rate cuts.

“In an uncertain world, one way to overcome uncertainty is to wait a little; wait and make sure we don't take steps we will regret," Lane said at an event in Dublin.

Lagarde said on Monday that the ECB could wait more than one meeting before waiting on interest rates again, and all comments on the virtue of patience were seen as a signal that interest rates will remain unchanged next month.

Lane argued that wage growth was the main uncertainty and that this would require interest rates high enough to stifle growth.

"The high level of uncertainty and the still high price pressures evident in indicators of domestic inflation, services inflation and wage growth mean we need to maintain a restrictive monetary stance," Lane said in his speech in Dublin.

The market sees no more than one rate cut over the second half of the year and between three and four cuts over the next 18 months.

Lane, who is the backbone of the ECB's policy decisions, added that the ECB was not committed to any further policy easing after last Thursday's rate cut, and that any further steps would depend on the data received and decisions would be made meeting by meeting.

Lane said that wage growth, the main driver of inflation, was high as firms adjusted wages in response to past inflation but he expected it to slow next year.

Although economic growth has picked up, it does not appear to threaten to increase price pressures as demand in the sectors most sensitive to interest rates remains slow.