In an interview at Bloomberg House in Davos, ECB President Christine Lagarde said “it’s likely” for a rate cut in the summer, but added that she has to be “reserved”. She emphasized ECB’s data-dependent approach and acknowledged the prevailing uncertainty and certain indicators that are yet to reach desired levels.

Lagarde expressed concern regarding market expectations for aggressive rate cuts, labeling them as a “distraction” from the ECB’s primary goal of combating inflation. She expressed concern that if market anticipations are misaligned with reality, they could hinder ECB’s inflation control efforts.

Reiterating the ECB’s commitment to achieving sustainable inflation of 2% over the medium term, Lagarde asserted, “We are on the right path, we are directionally towards the 2%, but unless and until we are confident that it is sustainably at 2% — medium term — and we have the data to support it, I’m not going to shout victory.”

ECB Governing Council Gediminas Simkus expressed a conditional optimism about rate reductions within the year, stating, “If we don’t see any surprises that would change the data and the thinking, I’m positive about rate cuts this year.”

However, Simkus tempered his outlook with a dose of realism regarding the timing of these cuts. He clarified, “I’m far less optimistic than markets about rate cuts in March or April.”

Separately, another Governing Council member Madis Müller commented on the aggressiveness of market expectations for ECB rate cuts in 2024. He observed that these expectations do not align with the current data available to the central bank.

Müller further emphasized that wage growth in Eurozone remains out of sync with the ECB’s current inflation targets. He noted that ECB cannot proceed with cutting rates until data reflects the desired price growth conditions.

Germany’s ZEW Economic Sentiment rose from 12.8 to 15.2 in January, above expectation of 12.7. Current Situation index fell slightly from -77.1 to -77.3, below expectation of -77.0.

Eurozone ZEW Economic Sentiment fell from 23.0 to 22.7, above expectation of 21.9. Current Situation index rose 3.4 points to -59.3.

ZEW President Achim Wambach noted that “Economic expectations for Germany have improved again,” attributing this positivity partly to expectations that ECB will cut interest rate in the first half of the year. This expectation is shared by “more than half of the respondents ”

Furthermore, Wambach highlighted that there are even more pronounced shifts in US interest rate expectations. He stated, “More than two-thirds of the respondents predict interest rate cuts by the US Federal Reserve in the next six months.”

Wambach also pointed out that the recent rise in inflation in Germany and Eurozone in December does not seem to have influenced the monetary policy expectations of the respondents.

Full German ZEW release here.

In a Reuters interview, ECB Governing Council Member Tuomas Valimaki addressed the disparity between market pricing, which suggests a 150 basis points rate cut this year, and the views of economists.

He pointed out that the expectations reflected in money markets do not always align with economists’ projections, indicating a significant level of uncertainty among market participants. The wide distribution around market prices, as mentioned by Valimaki, underscores the existing ambiguity and varied interpretations of future monetary policy directions.

Valimaki further elaborated on the implications of market expectations versus the ECB’s baseline forecasts. He pointed out that if market rates were to fall more rapidly than projected, and the ECB’s forecasts prove more accurate, it could lead to higher inflation. This scenario, he explained, “could delay monetary easing.”

At the World Economic Forum in Davos, ECB Governing Council member Mario Centeno highlighted the positive direction of medium-term inflation, noting that its “trajectory is very positive right now.” He further told CNBC that “we don’t need to do more than is needed”

On the topic of rate cuts, Centeno noted “once inflation starts going down sustainably, with an economy … that is not growing, where the challenges are huge, we need to be open to get all data on board and decide upon that.”

Meanwhile, another ECB Governing Council member, Francois Villeroy de Galhau, speaking at a panel in Davos, cautioned against premature declarations of victory over inflation. However, he admitted that “our next move will be a cut, probably this year” evenh though he refrained from commenting on the timing.

During the World Economic Forum in Davos, ECB Governing Council member Robert Holzmann expressed skepticism about the possibility of rate cuts in the near term. He told CNBC, “I cannot imagine that we’ll talk about cuts yet, because we should not talk about it.”

His asserted, “Everything we have seen in recent weeks points in the opposite direction, so I may even foresee no cut at all this year.”

“Unless we see a clear decline towards 2%, we won’t be able to make any announcement at all when we’re going to cut,” he explained.

Holzmann also highlighted the potential for structural changes in the economy, which could have longer-term implications for pricing. He mentioned, “Prices on a day-to-day basis may increase, but it may also risk to change the way we do business.” This comment points to the possibility of enduring economic shifts that could affect pricing dynamics and, consequently, ECB’s monetary policy decisions.

In an interview with Bloomberg TV, ECB Governing Council member and Bundesbank President Joachim Nagel hinted at the possibility of delaying interest rate cuts until after the summer, stating, “Maybe we can wait for the summer break.” However, he was cautious not to delve into speculation, emphasizing, “I don’t want to speculate.” He also empahsized, “it’s too early to talk about cuts.”

Further elaborating on the current market expectations, Nagel addressed the speculations of six 25 basis points rate cuts by ECB this year. He noted, “The markets from time to time are optimistic. Sometimes they are overly optimistic.” This acknowledgment highlights a divergence between market expectations and the ECB’s internal assessments. Nagel’s observation, “I have a different view,” underscores a more cautious and less aggressive approach towards monetary easing.