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Makhlouf expects ECB will cut interest rates in June


The Governor of the Central Bank has said he expects that “all things equal” the European Central Bank will cut interest rates in June.

However, Gabriel Makhlouf said he remains open-minded about the path which interest rates might take after that.

“I think we’re pretty close to it now,” the Governor told CNBC in an interview in Washington DC, where is currently for the IMF Spring Meeting.

“Before Christmas, I mean, my view was that we had, I mean, I wasn’t ready to rule out going further in the hiking cycle. But I think we’ve now over the last few weeks, seen enough data to say that we’ve reached the top of the ladder.”

“And at our last meeting, from my perspective, we’ve got greater confidence that we can start to reduce the tightening in our monetary policy stance. I would expect all things equal, that we will see a change in June, unless there’s something completely surprising and a shock that we don’t expect.”

But the Governor said he was clear that he needs to remain open-minded about the rate path after that, with the ECB taking a meeting-by-meeting data dependent approach up to now.

“I think that tells you to be cautious and certainly I will rule out trying to predict how many more moves there may be, there may be none, there may be more than one,” he said.

“But I think meeting by meeting is the way to do it. There’s too much uncertainty. And certainly in the inflation numbers today, we were still seeing enough in services inflation, to make us cautious about predictions, so I would not predict how many cuts there may be at all.”

Mr Makhlouf added that price stability would remain the ECB’s main focus.

The Governor also told CNBC that while the Irish economy is doing well and is healthy, with indicators moving in the right direction, it is operating at capacity with participation rates in the labour market at the highest level.

He added that these capacity constraints are an internal risk.

“But the whole geo economic situation is something that as a small open economy, we worry about quite a bit,” he said.

The Governor said uncertainty has been a concern for the ECB for the last 18 months, with the pandemic and Russia’s invasion of Ukraine.

“So we’ve been living in this era of uncertainty. And, my own view is that we need to be extremely cautious in our decision making,” he said.

Referring to the attempted strikes by Iran on Israel at the weekend, Mr Makhlouf said there hadn’t yet been any particular effects on markets.

“But you can’t rule out anything,” he added.

He said the worst-case scenario of an escalation in Middle East tensions from an economic point of view would be a repetition of the bottlenecks in the energy market.

However, it could be much more than that, he added, if the Red Sea completely closed.

“We could see trade routes affected,” the Governor said.

“So I think we should be ready for all scenarios right now. And just be very, very vigilant as we observe what what’s happening in, in the Middle East, in particular.”


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