Madrid (Reuters) – The arguments in favor of a new decrease in guiding rates of the European Central Bank (ECB) are strengthened, said Piero Cipollone, member of the Council of Governors of the Institution on Monday, echoing similar comments made on Friday by his colleague Yannis Stournaras.
The ECB brought back at the beginning of the month its deposit rate to 2.5%, but it gave few indications for the future, explaining that uncertainty was simply too high for the bank to be pronounced.
Piero Cipollone, however, argues that economic conditions have changed since the last BCE meeting and that inflation could drop faster than expected.
“Key questions have emerged that have strengthened the arguments in favor of continuing the drop in rates,” he said in an interview with the Spanish expansion newspaper.
“We should achieve our inflation goal earlier than our last projections indicate,” he adds.
The projections provided by the ECB at its last meeting show inflation for this year to 2.3%, against a rate of 2.1% previously planned.
Yannis Stournaras, president of the Greek central bank and member of the ECB, advanced on Friday an argument similar to that of Piero Cipollone, ensuring that everything suggests that the institution will make a new drop in the rent for money in April.
According to Piero Cipollone, from the BCE March 6 meeting of March 6, energy prices have dropped considerably, the euro appreciated and the real rates have climbed, all this contributing to a faster drop in inflation.
“And if the United States had to impose customs duties on European exports, this would have a negative impact on demand, which would further strengthen the downward trend in inflation,” he argued.
New American customs duties are supposed to come into force on April 2.
“Trade tensions between China and the United States could lead China to redirect its products to the European market, which would increase the downward pressure on prices,” notes Piero Cipollone.
The financial markets currently assess at around 60% the probability of a drop in BCE rates in April, while a new reduction in loan costs by June is deemed very likely. Investors then predict a new drop in rates, probably in December, which would bring back the final rate of deposit of the ECB to 2% by the end of the year.
(Report Inti Landauro; written by Balazs Koranyi; Claude Chendjou, edited by Blandine Hénault)
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