The President of the European Central Bank, Christine Lagarde, on Tuesday said the central bank is still in the process of reducing interest rates in the short term, subject to any data developments.
"We are observing the disinflation process moving in line with our expectations," said Lagarde. He continued that for the time being the ECB only needs to build a little more confidence in this disinflation process and expect it to develop as expected.
His comments came after the central bank gave its clearest indication yet that it may start cutting interest rates at its June meeting. The ECB on Thursday kept interest rates steady at a historic high for a fifth straight meeting, but signaled that cooling inflation meant it could start cutting rates as soon as possible if there is no shake-up in current developments.
In a change from previous language, the ECB said "it is seen as appropriate" to lower the deposit rate to 4% if underlying price pressures and the effects of previous rate hikes can increase confidence that inflation is returning towards the 2% target "on a sustained basis". The central bank had not previously included indications of easing monetary policy in previous communications.
Officials and economists have focused on June as the month in which interest rates could begin to be cut, after the ECB cut its medium-term inflation forecast. Inflation in the eurozone slowed more than expected in March.
When asked about the central bank's confidence in inflation continuing after commodity prices rise, especially if oil prices surge amid geopolitical tensions, Lagarde replied, "All commodity prices have an impact, and we have to be very careful about those movements."
