Christine Lagarde, head of the European Central Bank: If there is no major surprise, interest rate cuts will come soon

Finance Associated Press, April 16 (edited by Shi Zhengcheng) Early in the morning of Tuesday local time, European Central Bank President Lagarde, who was attending the Spring Meeting of the International Monetary Fund in the United States, clearly released a signal to the global market that "interest rate cuts will come soon".

In contrast, the Fed's rate cut expectations are becoming increasingly obscured as US economic data continues to beat expectations since the beginning of the year. This has also led to the continued weakening of the U.S. stock market after hitting a new high at the end of March, dragging down the sentiment of global stock markets.

We are heading for a moment when austerity policy "must be adjusted".

Against the backdrop of Lagarde's remarks, the ECB kept its policy rate, which is at a historical extreme, unchanged at its historic extreme, at its monetary policy meeting last Thursday, but the wording of its policy decision shifted, emphasizing that if inflationary pressures and the impact of previous interest rate hikes strengthen confidence that inflation will continue to fall back to its 2% target, then a reduction in its 4% deposit rate will be appropriate. This is also the first time that the ECB has mentioned "interest rate cuts" in the resolution document in this round of monetary cycle.

According to Eurostat, inflation in the eurozone continued to fall back to 2.4% in March this year, compared to 2.6% in the previous month.

(Source: Eurostat)

In an interview on Tuesday, Lagarde also mentioned the welcome change in the inflation situation in Europe and bluntly said that "a rate cut is in sight."

"We're watching a slowdown in inflation, and it's developing as we expect," she said. We just need to build more confidence in the process. If there are no major shocks, we will move towards the moment when we have to adjust our monetary policy tightening. ”

Probably for fear that the market would not hear clearly, Lagarde repeated the most crucial sentence: "As I said, if there is no additional shock, it will be a fairly short time to adjust the tightening of monetary policy." ”

According to the schedule, the next monetary policy meeting of the ECB will be held on June 6.

For the so-called "major surprises", Lagarde also mentioned the risk of rising commodity prices, especially the volatility of energy and food prices, which can have a rapid and immediate impact.

In addition to Lagarde, other ECB officials made similar statements on Tuesday. ECB Governing Council and Bank of France President Villeroy made it clear that after the June rate cut, subsequent rate cuts will be "pragmatic and flexible gradualism". He also referred to the need to observe developments in the situation in the Middle East.

In addition, the governor of the Bank of Ireland, Gabriel Makhlouf, also agreed that "if there is no surprise, the interest rate will be cut in June", while stressing that there is too much uncertainty now, and there is no way to predict how many more interest rate cuts will be made this year, so we can only take one step at a time. Bank of Finland Governor Olli Rehn also mentioned the uncertainty about interest rate cuts caused by Russia, Ukraine and the Middle East.

The Fed can't get around it

While Lagarde made it clear last week that the ECB's monetary policy is "data-dependent" and not "Fed-dependent", the Fed's influence/drag remains undeniable. According to the latest expectations, the Fed's "first decline" this year may drag on until July, or even September after the summer holidays.

(Source: CME)

The widening of interest rate differentials between the United States and Europe will also put new pressure on the already stressed euro exchange rate.

While the ECB itself is not as exchange-oriented, unlike the SNB, a weaker euro combined with rising oil prices could contribute to a larger-than-expected rebound in inflation. After the release of the US CPI data last week, the probability of consecutive interest rate cuts in the eurozone in June and July plunged from 50% to 20% in the market.

After the volatility of the past few days, the EUR/USD pair has fallen to around 1.06, also the lowest since the beginning of November last year.

（EUR/USD日线图，来源：TradingView）

(Finance Associated Press, Shi Zhengcheng)