(Bloomberg) — European Central Bank President Christine Lagarde and the bank’s chief economist said there is not yet enough evidence that the inflation threat has passed, raising expectations that authorities will pause on interest-rate cuts this month.
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Speaking at the opening of the ECB’s annual central bank forum in Sintra, Portugal, on Monday, Lagarde said the euro zone’s strong jobs market gives the ECB time to assess the information coming in. In an interview on Bloomberg TV on Tuesday, chief economist Philip Lane said June’s inflation reading was insufficient to fully assess closely watched services prices.
“We still face several uncertainties about future inflation, in particular how the relationship between profits, wages and productivity will evolve and whether the economy will suffer a new supply-side shock,” Lagarde said. “It will take time to have sufficient data to be confident that the risks of above-target inflation have passed.”
The comments signal the ECB intends to keep borrowing costs steady when it meets later this month.Since the first rate cut in June, investors have been looking to Lagarde for signs of how quickly rates will be lowered and whether the political drama back home will have any impact on monetary policy.
Monday’s speech made no mention of France or provided any specific guidance on the ECB’s future path, with Lagarde reiterating her determination to take decisions once more data is available.
“The strength of the labor market allows us time to gather new information, but we also need to keep in mind that the growth outlook remains uncertain,” he said. “All of this underpins our determination to remain data-dependent and take policy decisions at each meeting.”
Read more from Sintra: ECB rallies as French election drama casts shadow over rate cuts
Lagarde said officials’ assessment of the inflation outlook is “based on but not limited to our forecasts,” denying analysts’ speculation that the ECB would consider changing interest rates only at its quarterly meeting when new forecasts are released.
He also stressed that policymakers will not let specific information throw them off track, and that in the past the path back to 2 percent has been difficult and there may be temporary setbacks.
“New information flows constantly complement and refine the medium-term inflation outlook, which is not dependent on any particular data point,” Lagarde said. “Data dependence does not mean data point dependence.”
What ECB officials say in Sintra…
Gediminas Simkus from Lithuania — Click here for the full interview
Pierre Wunsch from Belgium — Click here for the full interview
Madis Muller from Estonia — Click here for the full interview
Bostjan Vasle from Slovenia — Click here for the full interview
Policymakers on Tuesday will receive an update on price pressures across the euro zone in June, when economists expect consumer price inflation to slow to 2.5% from 2.6%, possibly showing some progress towards the 2% target.
That has markets expecting one or two more rate cuts this year, a scenario Finland’s Olli Rehn called “reasonable,” though he also said authorities cannot promise a particular path.
The Bank for International Settlements warned Sunday that central banks should be cautious about cutting interest rates too quickly to avoid a resurgence of inflation.
Lagarde agrees.
“Our work is not done,” she said. “We need to remain vigilant.”
–With assistance from Marilen Martin.
(Updated to cite ECB’s Muller and Vaslet.)
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