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As expected, the European Central Bank cut its policy rates by 25 basis points on Thursday 06.06.2024. This is the first cut in almost five years amid signs of weakening inflation figures.
The ECB is the third central Bank of a developed market country to embark on a new easing cycle. Before this cut move, the Swiss and Canada Central Bank cut rates. In the case of the FED, some U.S. lawmakers, such as Sem Sen. Elizabeth Warren urged the central bank to follow in the ECB's footsteps. But Chair Powell appears to go with the planned program for a cut in September.
However, things are not so brilliant in Europe. The ECB warned that pushing the rate of inflation down to 2% will be hard to achieve and if so, it will take some considerable time. Given this and in contrast with the long-telegraphed move of Thursday, the ECB has not issued any guidance as to further easing. As it appears, recent inflation and wage growth data came in above estimates.
The biggest warning came perhaps from Germany, the euro zone's largest economy, which poured cold water on suggestions that a big wage jump this year was a one-off. This statement occurs on the back of substantial upward pressure in wage-sensitive sectors like services.
Knowledge is power.
