European Central Bank officials stuck with plans to cut interest rates several times this year, even as higher inflation in the United States led to a shift to looser policy by the US Fed and tensions in the Middle East sent oil prices soaring. Investors are reconsidering what they expect to be a global easing cycle after strong price growth in the United States announced plans to begin cutting borrowing costs, which has been seen as a sign of a start for other central banks.
The president of the ECB, Christine Lagarde, has clearly signaled that the European zone's central bank is likely to start reducing its deposit rate from a historic high of 4% in June but has been careful to leave options open.
Almost all of their counterparts from the currency bloc's 20 national central banks have steered clear of further action, saying they expect further rate cuts to follow as inflation in the European zone gradually declines to reach the ECB's 2% target by next year.
All ECB members have emphasized that ECB decisions will be based on incoming data, particularly involving wages, profits, and productivity.
Recent developments in the Middle East and the United States are generally seen as reasons for more caution even if they do not fundamentally change sentiment in the European zone, said French central bank governor Francois Villeroy de Galhau. Inflation in the European zone has decreased in all categories except services.
However, some investors have begun to doubt the ECB's resolve, with money markets no longer fully pricing in three cuts by December.
Traders expect the ECB will eventually be forced to follow the Fed's move to not affect the value of the currency.
