The European Central Bank (ECB) could reduce interest rates at least twice this year, according to Gediminas Simkus, member of the board of directors.
Simkus reported Friday during the spring meetings of the International Monetary Fund in Washington, that the weakness of world trade, largely caused by new American rates, brings a new threat to the European economy.
He also noted that inflation was already down and could slow even more in the coming months.
The deposit rate has been reduced for the seventh time since June of last year, to 2.25%. However, Simkus thinks that there is still room to facilitate policy without generating financial instability or overheating the economy.
Simkus said there was no reason to stay in the current financial environment and that he could not exclude two other cups this year, given the data he had before him. However, he added that more negative surprises would be necessary to move lower.
His remarks echo what the market expected. Investors are betting on at least two additional rate drops this year. Some analysts, including those of Bank of America, provide that the deposit rate could drop by 1.25% by December, suggesting four other small reductions.
Simkus also stressed that the BCE's approach had remained agile and said that he did not think that they had late interest rates.
American prices and the strong extension of the euro lead
New evidence indicates a relaxation of the economic recovery of the euro zone. Earlier this week, the International Monetary Fund reduced its forecasts for the GDP in the euro area, citing mounting trade tensions and stricter financial conditions as key factors.
Simkus conceded that political decision -makers had been “too optimistic” to predict how fast the economy would rebound. He added that slower wages growth throughout the euro area has become a symptom of cooling demand.
He also cited the recent Euro force against other currencies, which makes European exports less competitive abroad. The American prices, on the other hand, diverted more Chinese products to Europe, adding disinflationary pressure.
These factors are likely to reflect in the next Lot of economic projections of the ECB, which should be published in June. According to Simkus, the new figures “should include lower economic growth and slower inflation than hypotheses” made in previous forecasts.
However, Simkus has reduced even more substantial interest rate reductions unless the economy is rushed. For the moment, the ECB will probably be at its usual quarter stages.
THISB established the rhythm of the action, not depends on us transactions
Simkus also stressed that the ECB would not sit down and would not wait for American trade negotiations to be imminent.
The expectation of 90 days of President Trump's administration was an attempt to impose certain prices as binary options to allow trade agreements with the main business partners.
Even with American ultimatums to certain countries, Simkus has warned that the uncertainty of commercial policy will probably remain.
Several ECB officials shared similar views last week, citing softer manufacturing data and lower growth in the service sector.
Now the markets are watching the economic data and comments of the BCE officials at the next Bank's political meeting in June.
If the economy remains low, a new drop in rate could occur from this meeting, leaving the ECB firmly on its current prudent but regular relaxation.
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