Wage developments to be focus of ECB interest rate decision

ISTANBUL

Wage developments will be the key factor for whether or not the European Central Bank decides to cut interest rates, economists told Anadolu ahead of the bank's meeting next Thursday.

Pointing to lower-than-expected March inflation figures, Peter Vanden Houte, chief economist at the Dutch banking firm ING Group, told Anadolu that it was still early for the ECB to give the all-clear on inflation.

According to Eurostat's flash data, the euro area annual consumer inflation rate slowed to 2.4% in March, down from 2.6% in February.

"Also, (ECB President) Christine Lagarde made it very clear that more information is needed, especially on wage developments, before the ECB can be certain its inflation target will be attained," Houte said, adding that some of the indicating data will be available in May.

Saying that a rate cut was not discussed at the ECB's last meeting, Houte underlined that the latest economic surveys have been improving, indicating that there is no need for an emergency rate cut.

"Therefore we believe that the ECB is going to leave monetary policy rates unchanged at next week’s meeting," he stressed.

However, he highlighted that a growing number of Governing Council members will likely want to discuss the timing of a first rate cut at next week’s meeting.

"We therefore believe that during the press conference Lagarde is likely to put the door open for a rate cut in June," he added.

Dirk Schumacher, head of European Macro Research at the France-based financing firm Natixis, said the rate is expected to remain on hold in April despite a further decline in headline inflation.

"Rather we expect the ECB to reiterate its long-held view that it would need to see further evidence that wage pressure is moderating," he explained.

The ECB is projected to provide some hints that the baseline scenario remains consistent with a start of the cutting cycle by June, Schumacher said.

Marco Wagner, senior economist at Frankfurt-based Commerzbank, also forecast the ECB will leave interest rates unchanged.

"The central bankers will probably wait for further data on wage trends and the new projections that will be available at the June meeting," Wagner said. "We expect four interest rate cuts of 25 basis points each by spring 2025."