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ECB: Rate cut in June still in the cards

May 9, 2014

The European Central Bank kept its benchmark interest rate unchanged at a record-low 0.25%, as expected. The central bank is waiting for inflation signals as the Euro-area recovery should reignite consumer prices. The wait-and-see stance is supported by an uptick in price gains last month and signs the year-old recovery is continuing. Even so, inflation has been below 1% since October and fresh staff forecasts next month will show whether the medium- term outlook has worsened. ECB President Mario Draghi signaled the central bank is ready to act, pointing out that “he would be comfortable with adding further stimulus next month.” Draghi last month raised the prospect of the most radical policy departure in the ECB’s history when he said that the risk of deflation and money-market tension could prompt the ECB to embark on quantitative easing. Yesterday, Draghi repeated that the ECB is still ready to utilize unconventional monetary measures, should a worsening of macroeconomic conditions require it. The central bank head was also pointing out his concerns on the strong Euro.

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