(Reuters) – Officials of the European Central Bank (ECB) reduced their guiding rates last month to avoid an unjustified tightening of monetary conditions and faced with the growing uncertainty concerning trade, shows the report of the last meeting of the Frankfurt Institution, published Thursday.
The ECB lowered its interest rates on June 5 for the eighth time in a year, but suggested that it would now take a break because inflation is already at its target level, while American trade policy creates too much uncertainty.
“The members stressed that the prospects for the global economy remained very uncertain,” wrote the ECB in its “minutes”.
“High commercial uncertainty is likely to dominate for a certain time and could widen and intensify,” continues the report.
The probability of a break on rates in July has strengthened in the weeks following the June meeting, the majority of ECB officials who have joined a status quo starting from the principle that key indicators and new elements on trade negotiations would not be available by their meeting.
The markets are also on the same wavelength. Investors consider only one additional drop in the BCE deposit rate, currently at 2%, towards the end of the year.
“The indicators of April and May already suggest a certain slowdown in the world economy,” notes the ECB.
Even if most political leaders say that the ECB has essentially achieved its objective, some, including the Finnish Olli Rehn, the Portuguese Mario Centeno and the Belgian Pierre Wunsch, warned the risk of too low inflation, which would require even more important support.
Price growth is expected to go below the objective of the ECB during the year and remain less than 2% for 18 months due to the strength of the euro, relatively low energy costs and cheap Chinese imports. Inflation could then return to the target of 2%.
Other managers note, however, that demondialization, ecological transition and aging of the population will accentuate prices and that the ECB may soon be faced with inflation higher than the objective.
(Written by Marc Jones; Claude Chendjou; edited by Blandine Hénault)
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