ECB officials have indicated a growing likelihood of a rate cut as soon as June, though decisions hinge on forthcoming economic projections and persistent inflation concerns.

Bundesbank President and ECB Governing Council member Joachim Nagel voiced cautious optimism to CNBC about the possibility of easing monetary policy, noting, “the probability is increasing” for a rate reduction, albeit with “some caveats” due to still-high core and service inflation rates.

Nagel emphasized that ECB’s upcoming projections in June will be crucial. “For the June meeting, we will get our projections, so we will get our new forecasts and if there is a confirmation that inflation is really going down and we will achieve our target in 2025,” he explained.

In tandem, Mario Centeno, Governor of the Bank of Portugal and fellow ECB Governing Council member, described a rate cut in June as “very likely,” asserting that even with a reduction of 25 or 50 basis the ECB’s monetary policy would remain tight.

Slovenia’s central bank governor Bostjan Vasle projected that interest rates should be “much closer to 3% towards the end of the year if everything goes according to plan.” However, he also expressed concern over recent geopolitical tensions in the Middle East.

ECB’s March meeting accounts unveiled a unified stance among Governing Council members against discussing rate cuts at that time, citing it as “premature.” However, the narrative within the ECB is evolving, with increasing acknowledgment that “the case for considering rate cuts was strengthening,” pointing towards a strategic shift contingent on forthcoming economic data.

The meeting underscored a collective patience to assess more comprehensive data before making decisive moves on interest rates. Specifically, the council highlighted the importance of the June meeting, which will benefit from new staff projections and a broader array of data, particularly concerning “wage dynamics.” This contrasts with the April meeting, where available data would be “much more limited,” thus making it harder to be sufficiently confidenct in the ongoing disinflation process’s durability.

ECB’s deliberations reflect caution over the sustainability of disinflation, especially concerning “services and domestic inflation.” The uncertain prospects for wage growth, productivity, and profit margins are central to these concerns. For ECB to consider rate reductions with greater confidence, incoming data must align with March’s ECB staff projections, affirming that disinflation will consistently head towards the ECB’s target.

Full ECB meeting accounts here.

ECB Vice President Luis de Guindos urged fellow policymakers to look beyond labor market data. He said “The current low unemployment rate and the recent wage increases do not necessarily imply that higher inflation is around the corner”.

And, “monetary policy decisions need to be based on a wide array of economic indicators, not just the unemployment rate and wages”.

ECB Vice President Luis de Guindos said policy makers are “currently analyzing the causes of the economic slowdown in Europe, some of which are temporary”. But he emphasized that “we will not take a decision until we have conducted a thorough analysis.”

And, regarding inflation, he said “even if energy prices were to fall a little in the coming months, we are confident that inflation will, over the medium term, converge towards our aim of below, but close to, 2 percent.”

On no-deal Brexit, de Guindos said “a disorderly Brexit… would represent a significant macroeconomic shock at a time when the European economy is already weakened.”