Apr 11, 2024 - World

European Central Bank signals rate cut ahead

ECB president Christine Lagarde speaks behind a podium after a monetary policy decision

European Central Bank president Christine Lagarde at a press conference in Frankfurt, Germany last month. Photo by Zhang Fan/Xinhua via Getty Images

The European Central Bank kept borrowing costs at a record-high on Thursday, but new language in a statement released with the decision sent the strongest signal yet that rate cuts are coming soon.

Why it matters: Inflation across the European Union has come down notably in recent months, a divergence from the U.S. where price pressures have intensified.

  • That inflation progress — and signs of a weakening economy — means policymakers in Europe might be able to slash rates sooner than those across the Atlantic, helping to kick off a global rate-cutting cycle in major economies.

What they're saying: If price hikes continue to slow and give policymakers' confidence that inflation is closing in on its 2% target, "then it would be appropriate to reduce the current level of monetary policy restriction," the ECB said in a statement.

  • Put plainly, further progress on inflation would make the ECB more comfortable to cut rates. It's the first time since the post-pandemic inflation shock that such a prospect has been raised by the ECB in its statement.
  • The central bank held interest rates at 4% on Thursday.

The big picture: The statement notes positive developments on inflation, which was 2.4% in the year through March, down from 2.6% the prior month.

  • Core inflation, which excludes food and energy prices, was 2.9% — the lowest since 2022.
  • The ECB noted inflation progress in its statement: "Most measures of underlying inflation are easing, wage growth is gradually moderating, and firms are absorbing part of the rise in labour costs in their profits."

Yes, but: The ECB also warned that the battle against inflation isn't totally won, noting that "domestic price pressures are strong and are keeping services price inflation high."

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