ECB likely to cut rates in small increments with pauses - Vujcic
Reuters
Published Jan 30, 2024 06:28AM ET
ZAGREB (Reuters) - The exact date for the start of European Central Bank rate cuts is secondary, but once the bank starts moving it is likely do it in small increments with possible pauses, Croatian policymaker Boris Vujcic said on Tuesday.
The ECB last week kept interest rates unchanged but sounded increasingly upbeat on inflation, boosting markets bets that it will start cutting rates sooner rather than later.
"April or June doesn't really make much of a difference for the economy," Vujcic told reporters on the sidelines of a conference. "I think it's more important that we achieve a kind of smooth transition."
Markets see 140 basis points worth of cuts this year and an initial step in April is now almost fully priced in, despite some pushback from conservatives on the ECB's 26-member Governing Council.
"I think that 25 basis point moves are preferable to larger (steps)," Vujcic, Croatia's central bank chief, said. "It doesn't have to be continuous ... there will some be pauses."
One concern has been that economic growth is so weak, it could accelerate disinflation and price growth may fall below the ECB's 2% target as soon as this year, ahead of the bank's own projection for 2025.
But the bloc escaped recession last quarter as output stabilised, even if it is now in its sixth quarter of broadly steady economic performance.
"The risk of a recession in the euro zone is getting smaller and smaller," Vujcic said. "We do expect that the economy will pick up this year, so we're going to a modest rate of growth coupled with a further disinflation."
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Written By: Reuters
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