European Central Bank Chief Knot: No Case for July Rate Cut, September Meeting "Open" for Further Easing
In a recent interview with German newspaper Handelsblatt, Dutch central bank chief Klaas Knot stated that there is no case for the European Central Bank to cut interest rates this month. However, he mentioned that the September meeting will be "open" and that market expectations for further easing are appropriate for now.
The ECB had previously cut rates in early June and hinted at more easing to come, but did not provide any specifics on the timeline of future moves. Knot expressed comfort with the ECB's progress in cutting inflation, aiming to reach the 2% target by late 2025. He emphasized the importance of not delaying further action, as being above the target for an extended period could hinder economic growth.
Market expectations currently predict between one and two rate cuts this year, with over four moves expected in the next 18 months. This suggests that the deposit rate will likely remain above 3% into the second half of next year. Knot noted that as long as the rate is above 3%, it is still considered restrictive.
Knot highlighted the risks to the inflation path, which include rapid wage growth paired with modest productivity improvements, as well as uncertainties regarding firms' ability to manage higher labor costs with lower profit margins.
In summary, the European Central Bank is not likely to cut rates in July, but the September meeting could provide more clarity on future easing measures. The current policy stance and market expectations align with Knot's views, with the deposit rate expected to remain above 3% for the foreseeable future. Investors should keep an eye on upcoming ECB meetings for potential updates that could impact their financial decisions.