ECB Faces Growing Pressure to Cut Interest Rates as Inflation Slows Down: Potential Cuts Driven by Monetary Policy, Energy Crises, and Wage Developments

The European Central Bank (ECB) is facing growing pressure to cut interest rates as inflation slows down significantly. According to a Reuters poll of 77 economists conducted in March, most experts predict that the central bank will start cutting interest rates in June. However, some economists believe that the ECB will keep its key interest rate unchanged in April and instead make a cut in June.

The potential cuts are being driven by several factors, including the tightening of monetary policy and the easing of energy crises and international supply disruptions. Inflation was at 2.6% in February, compared to 8.5% a year earlier, which has contributed to this slowdown. The central bank’s price stability objective requires inflation to be at two percent in the medium term, which could put additional pressure on policymakers to act.

Financial markets are also anticipating interest rate cuts based on new data on wage developments at the beginning of the year. Wage increases have contributed to higher prices, with service industries experiencing particularly significant increases. Many economists expect a 0.25 percentage point decrease in key interest rates in June, but some believe that this could be higher or lower depending on various factors such as economic growth and global events.

Overall, uncertainty remains about the exact trajectory of policy rates for the remainder of the year, with some economists predicting a total cut of 1.00 percentage points while others believe it will be less than that amount. However, there is no doubt that interest rate cuts are becoming increasingly relevant as policymakers seek to address inflationary pressures and support economic growth amidst global uncertainty and market volatility.