BCE returns to cut interest rates, still not very confident.
Despite reservations from some members of the European Central Bank (ECB), another interest rate cut was advanced in the month of June.
BCE cuts interest rates again in the month of June
According to a publication by Notícias ao Minuto, the European Central Bank (ECB) once again cut interest rates in June, even though some members did not believe that the available information increased confidence in achieving the 2% inflation retreat.
The cut in question was 25 basis points in interest rates, with inflation also slowing down again.
This was not a unanimous decision, as the Governor of the National Bank of Austria, Robert Holzmann, voted against it with a divergent opinion supported by the data received and the high risks for inflation, not believing in a support that justified cutting rates.
However, although some members expressed reservations during the meeting, almost all members were in favor of the proposed cut. "Some members considered that the data available since the last meeting did not increase their confidence in the possibility of inflation reaching the 2% target by 2025," however, and "on the contrary, they pointed to greater uncertainty in the outlook."
Regarding inflation, the ECB's projections foresee a delay in the return of inflation to the 2% target for the last quarter of next year in 2024 and 2025, considering that the final phase of the disinflation process will be "more difficult".
"Taken together, these considerations suggested that the principle of data dependency was not fully adjusted and there were reasons to keep it unchanged in the current meeting. However, the desire to approve the proposal was expressed despite the reservations," reads the news citing the ECB text.
Faced with these concerns, most members expressed confidence in inflation falling to 2% by the end of 2025, even though the most recent data is slightly less favorable. They believe that one should not "overreact to adverse data or inflation numbers from just one month, as they do not necessarily imply a new trend and could reflect one-time factors".
"This approach should not be seen as opposed to data dependence, since waiting for full confirmation would almost certainly cut interest rates too late, which could create a significant risk of not reaching the target," it also read.
Thus, the rate of the main refinancing operations slowed to 4.25%, the rate of the permanent liquidity lending facility to 4.5%, and the rate of the permanent deposit facility to 3.75%.
Regarding the upcoming meetings, the ECB indicates that it will maintain a data-driven approach, meeting by meeting, without committing to a specific trajectory.
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