FRANKFURT (Reuters) – Euro zone inflation is falling in the direction of 2% and geopolitical stress poses solely average dangers however the European Central Bank ought to nonetheless train warning in chopping rates of interest past a primary step in June, Dutch policymaker Klaas Knot advised .
The ECB has all however promised a fee lower for June 6 and policymakers at the moment are debating proceed in subsequent months after oil costs rose and unexpectedly excessive inflation readings within the U.S. elevated the possibility that the Federal Reserve will delay the beginning of its personal easing cycle.
“I am increasingly confident in the disinflation process,” Knot mentioned in an interview on Monday, including that the June fee lower stays sensible if worth and wage information proceed to return in keeping with projections.
But Knot took a extra cautious view on subsequent steps.
“For after June, I would say: no pre-commitment to any specific time path,” he mentioned.
Knot emphasised the relevance of quarterly information however stopped in need of an earlier suggestion that fee cuts may additionally come when the ECB publishes new projections in September and December.
Still, he additionally performed down the relevance of a delay in Fed cuts.
Some argue that the Fed’s hesitation may weaken the euro and enhance imported inflation, forcing the ECB itself to delay.
Indeed, markets now see simply 66 foundation factors of fee cuts this 12 months, down from nicely over 100 foundation factors just a little over a month in the past.
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“If the source of the euro depreciation is tighter monetary policy by the Fed, then that tighter monetary policy will also likely lead to higher bond yields across the globe spilling over to the euro area and that spillover will be disinflationary,” Knot mentioned.
“I therefore think this factor should not be overestimated.”