The ECB appears to be certain of the first rate cut in June. But one risk factor can still derail the easing plan: geopolitics. What can happen?
There is a risk that more than others can now stop the first ECB rate cut (expected in June): it is geopolitics, with the dangerous entanglements of the Israeli war on Gaza and a direct conflict between Iran and Tel Aviv which can overlap with the Russia-Ukraine events.
That geopolitical dynamics have become crucial to any economic and financial choice or forecast has become clearer than ever since Moscow attacked Ukraine two years ago.
Central banks are also closely observing the escalation of war in the Middle East and the evolution of the conflict on the borders of Eastern Europe. The prices of raw materials and trade dynamics have proven particularly vulnerable to war events in these regions of the world which are so important for the supply of energy, agricultural raw materials, and metals. Consequently, inflation controlled by the ECB and the Fed was influenced, and with it, the monetary policies aimed at bringing prices back to the 2% target.
In this context, the Eurotower’s certainty in succeeding in cutting rates in June - a move expected by global markets while the Fed stalls - falters in the face of possible geopolitical shocks.
Geopolitics can stop the first ECB rate cut, here’s why
According to President Christine Lagarde, the ECB is moving closer to cutting interest rates unless shocks derail slowing euro zone inflation.
Lagarde told CNBC on Tuesday that officials in Frankfurt are “observing a disinflationary process” that is currently in line with expectations and should sustainably bring consumer price growth back to 2% by mid-2025. However, Lagarde declined to comment on how many cuts in financing costs could materialize in the coming months, drawing attention to a “succession of geopolitical developments” that have dented - and may still do so - consumer confidence and roiled investment markets. raw material.
Despite the “relatively moderate” reaction in energy prices following Iran’s attack on Israel, she, therefore, remained cautious, stressing that inflation’s path to target will be a “bumpy road”.
Same view as ECB policymaker Robert Holzmann: “At this stage, I think the biggest threat is geopolitics, because we have seen what happened in the Middle East”, the governor of the Austrian central bank said on Wednesday on CNBC on the sidelines of the International Monetary Fund’s spring meetings.
“As you can imagine, just because a boat gets sunk in the [Strait] of Hormuz can result in a different oil price, and that obviously might require us to rethink our strategy”, he added.
His comments echo those of member Olli Rehn, who said on Tuesday that the likelihood of a June rate cut will depend on inflation falling as expected, stressing that the biggest risks to monetary policy arise from Iran-Israel tensions and the Russia-Ukraine war.
Original article published on Money.it Italy 2024-04-17 15:17:43. Original title: Solo un motivo può fermare il taglio dei tassi Bce di giugno
