MNI ECB Review - April 2024: Going 'Live' In June

The ECB left policy unchanged at the April meeting, but provided the clearest indication yet of an upcoming policy rate cut. A new sentence was added to the press statement: “If the Governing Council’s updated assessment of the inflation outlook, the dynamics of underlying inflation and the strength of monetary policy transmission were to further increase its confidence that inflation is converging to the target in a sustained manner, it would be appropriate to reduce the current level of monetary policy restriction.” Despite President Lagarde consistently stressing that the ECB takes a ‘meeting-by-meeting’ and ‘data dependent’ approach, the revised statement provides a clear steer on policy rates at the next meeting, albeit conditionally on the data.

Given that communication from various GC members in the runup to the April meeting indicated a preference for a June cut, which similarly follows President Lagarde’s previous signal that “we will know a lot more in June”, the new sentence in the April press statement is merely reaffirming what we already know. However, some new insights materialised during the press conference. President Lagarde indicated that while domestic price pressures remain a concern, the moderation in wage growth is the more significant development, which will pave the way for cutting the policy rate. Moreover, Lagarde stressed that not every price series needs to be aligned for the ECB to lower policy rates. Given the strength of the ECB’s policy signal (forward guidance in all but name) the hurdle for remaining on hold in June is now materially higher. Even if price data did not materially improve by June, as long as there is no significant reversal, the ECB will initiate the first cut at the next meeting.

For the full publication, please see:

ECB Review April 2024.pdf