The European Central Bank (ECB) is not ready to cut interest rates, despite some progress in addressing inflation in the Eurozone. The ECB’s chief economist Philip Lane stated that the current tight monetary policy will persist for a while.
ECB's Current Monetary Policy
Philip Lane noted that the return to target inflation is not yet secure. In June, the ECB reduced its key deposit rate by a quarter-point for the first time in nearly five years. However, Lane's recent comments indicate that borrowers should not expect rate cuts anytime soon.
Situation in the US and UK
In the US, Federal Reserve Chair Jay Powell hinted at a potential rate cut in September. In the UK, Bank of England Governor Andrew Bailey also expressed caution, despite some optimism about declining inflation.
Market Reaction
Investors have picked up on this cautious sentiment. Long-term inflation expectations in Europe have fallen to their lowest levels in nearly two years. The Eurozone's five-year, five-year forward inflation swap dipped below 2.1% for the first time since October 2022, compared to over 2.3% last month.
Thus, the ECB and other leading central banks prefer to act cautiously to prevent a resurgence in inflation, despite pressure from markets and borrowers.
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