There ECB is preparing to cut interest rates again in September. An expectation reinforced by data on wage growth, which has slowed, but the autumn looks very intense for the Frankfurt Institute, which could also intervene a second time in the following months, because the growth continues to disappoint.
The ECB has already cut the cost of money by 25 points in recent months, a isolated movewhich anticipated the change of pace of the main central banks, including the Fed, which will begin a path of monetary easing in September.
Two more cuts by 2024
The Latvian governor Martins Kazakhsspeaking on the sidelines of Jackson Hole Symposiumwhich started yesterday, said that the European Central Bank has margin for cutting interest rates twice more this year, as inflation remains on a downward path. The governor also said he was ready to vote for a rate cut as early as September if August inflation remains in line with forecasts and the ECB’s target.
The banker explained that although the recent data from theinflation they surprised to the upside, however focusing on single numbers risks losing sight of the overall situation. Furthermore, economic trends are consistent with easing price pressures, which should ultimately translate into lower inflation levels.
“We are along the line of our projections and that is consistent with a gradual decline in rates of interest,” Kasakz said, adding “our June projections assumed two more rate cuts this year and at this point I see no reason why we shouldn’t continue with them.”
Wages and PMI data
Meanwhile, the indicator relating to the wage growth in the Eurozonea key data item closely monitored by the ECB alongside inflation data, recorded a slowdown in the 2nd quarter. The latest flash survey by the ECB shows that negotiated wages have registered a growth of 3.6% in Q2, slowing from 4.7% in Q1 and the lowest level since Q1 2023.
Meanwhile, growth continues to disappoint in the Eurozone, with manufacturing slowing, only partly offset by services. According to preliminary estimates by S&P Global, the index Manufacturing PMI fell further at 45.6 points from the previous 45.8, resulting lower than the 45.7 points expected by analysts. A threshold that remains lower than the critical one of 50 and that still denotes a contraction in activity. The PMI for services accelerates insteadwhich rises to 53.3 points from the previous 51.9 points and largely exceeds the expected 51.7 points. Consequently, the Composite PMI rises to 51.2 points from the previous 50.2.
Rehn and Panetta are also in favor of a cut
In recent days, also the governor of the Bank of Italy spoke at the Rimini Meeting Fabio Panetta called for interest rate cuts in SeptemberPanetta did not comment on the outcome of the September meeting, but said it was “reasonable to expect that from now on we will move towards a phase of monetary easing.”
“Obviously I have an idea of what the ECB Council will do in September, but I will not discuss a topic that will be debated in that institutionally appointed assembly to decide on monetary policy measures,” specified the governor, who also spoke of a “exaggeration in the market reaction” regarding the state of theUS economybut confirmed that “it is slowing down and the European economy is also going through a phase of low growth or even stagnation”.
Also Olli Rhen leans towards another rate cut in September. “The recent increasing risks of negative growth in the euro area, said the President of the Finnish central bank – has strengthened the hypothesis of a cut interest rates at the next ECB monetary policy meeting in September, provided that disinflation is actually underway.”
The banker, a member of the ECB’s executive board, admitted that the economic recovery “is not a given” and that “the road to reaching the ECB’s medium-term target of 2% is likely to remain bumpy this year.”
