The ECB has launched discussions on interest rate cuts

The Council of the European Central Bank (ECB) began, this month, a discussion on the timing of the reduction of interest rates, according to the words of an official of the institution, quoted by Reuters.

Olli Rehn, a member of the ECB council, said on Friday: "If inflation continues to fall and, according to our estimates, it will sustainably move towards the target, we can start, in the summer, to loosen the brake pedal of monetary policy."

Analysts expect the ECB to cut interest rates three to four times this year, starting in June.

We remind you that, on March 7, the ECB decided to keep interest rates unchanged for the fourth consecutive time, as expected by analysts. After that meeting, the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility remained unchanged at the levels of 4.50%, 4.75% and 4%, respectively. This is the highest ECB interest rate since the euro was launched in 1999.

According to recently released estimates, the ECB expects a 2.3% increase in consumer prices this year, in the euro area, compared to 2.7%, which was the previous forecast.

The ECB's inflation target is 2%, and central bank officials believe that this level will be reached in 2025, after which the indicator will drop to 1.9% in 2026.

• IMF: "Tightening of monetary policy is necessary in many emerging economies in Europe"

Inflation in Central, Eastern and South-Eastern Europe (CESEE) is stronger than in advanced economies, which makes it necessary for the tightening of monetary policy by central banks in the region to be maintained for a longer period than in the case of the European Central Bank, said Friday the head of the European department of the International Monetary Fund (IMF), Alfred Kammer, in a speech at the Economic Forum in the Croatian city of Split, according to Reuters.

Buoyed by the softening of price increases, some central banks in the region have started lowering interest rates, led by Hungary, Poland and the Czech Republic, while the National Bank of Romania has postponed interest rate cuts for the time being.

"The decrease in the inflation rate is progressing much more slowly in Romania, the Republic of Moldova, Montenegro, Hungary and Serbia than in other areas of the CESEE region. Overall, inflationary pressures in the region remain stronger than in advanced economies," Kammer said, adding: "Therefore, many central banks in the region need to maintain monetary policy tightening longer than, for example, the ECB."

Government plans to withdraw extraordinary support measures for households and companies in 2024 and 2025 will help counter inflation by reducing demand, the IMF official explained, notes Agerpres. He added that in the period 2021 - 2023 there was an erosion of trust in economic institutions in emerging Europe, some central banks being affected by political interference.

"Let me be clear, central banks must be able to fulfill their mandates regarding inflation", Kammer also declared, emphasizing: "For this, independence is essential. Interference erodes trust and makes policy-making much more expensive." Kammer warned that achieving a soft landing in the region will not be easy, but it is important, given the need to boost emerging Europe's growth prospects sustainably.

Even before the pandemic, the speed of convergence of economies from emerging Europe to the most advanced in Europe has slowed. This means that the countries converging towards the average living standards in the EU, excluding the member states from emerging Europe, will only achieve this goal in the year 2100, 50 years later than originally estimated, the IMF official concluded.