The European Central Bank's chief economist, Philip Lane, spoke in an interview with the Spanish newspaper El Confidencial:
- Essentially, what we said in April was that if our level of confidence improved in inflation generally returning to our target, it would be appropriate to lower the current level of interest rates. There are still several weeks until the June meeting, but the April data is important. The preliminary estimate of Eurozone inflation in April and the published first quarter GDP data improve my confidence that inflation will soon return to target. So my confidence level has improved today compared to our meeting in April. But of course we will receive more data between now and June.
Lane also talked about the euro if the Fed holds on while the ECB cuts:
- If the question is whether current events in the US, including decisions made by the US Federal Reserve, are impacting inflation expectations and the European economy, then my point here is probably that we should not overestimate that impact. The US economy and interest rates affect the euro area in different ways, and these mechanisms essentially work in opposite directions. Some see the possibility of the euro depreciating against the dollar, but on the other hand, if the US bond market offers higher interest rates, this will put upward pressure on bond yields in Europe, which will essentially have the opposite effect. Consumption. So, when we add these effects, the net impact on the European economy is mostly contained. It is an example in which the exchange rate effect must be measured against any bond market effect. We will do this at every meeting before, during and after the summer.
This article was written by Eamonn Sheridan at www.forexlive.com.
