ECB Rate Cuts: Croatian Policymaker Foresees Gradual Approach
Croatian policymaker Boris Vujcic highlighted that the precise timing of the European Central Bank's rate cuts is of secondary importance. However, once the ECB initiates rate adjustments, it is likely to proceed gradually, with small increments and occasional pauses.
While the ECB opted to keep interest rates unchanged during its last meeting, it conveyed a more optimistic tone regarding inflation, prompting speculation in the markets that rate cuts may be imminent.
Vujcic highlighted that whether rate cuts commence in April or June may not significantly impact the economy. Instead, he stressed the importance of achieving a smooth transition in monetary policy.
Market expectations currently anticipate a total of 140 basis points worth of cuts throughout the year, with the first reduction in April already heavily priced in. Nevertheless, there has been resistance from some members of the ECB's Governing Council, particularly from conservative factions.
The Croatian central bank chief expressed a preference for 25 basis point adjustments over larger ones, advocating for a gradual approach to rate changes. He also suggested that rate adjustments need not be continuous, with potential pauses along the way.
One prevailing concern is the fragility of economic growth, which could exacerbate disinflationary pressures and lead to inflation falling below the ECB's target of 2%. Despite this, the euro zone managed to avoid a recession in the last quarter, with economic output stabilizing after six consecutive quarters of modest performance.
Vujcic conveyed optimism regarding the euro zone's economic prospects, noting that the risk of a recession is diminishing. He anticipates a modest uptick in economic growth this year, albeit accompanied by ongoing disinflationary pressures.
In summary, while the ECB's timing of rate cuts remains flexible, Vujcic highlighted the importance of a measured and cautious approach. The path forward is expected to involve incremental adjustments aimed at supporting economic growth and achieving the ECB's inflation objectives amidst ongoing uncertainties.
