By Paul Hannon
The European Central Bank will lower its key interest rate to less restrictive levels this year, but the timing will depend on how rapidly wages and prices cool, the head of the Dutch central bank said Tuesday.
The ECB has indicated that it will lower its key rate to 3.75% from 4% on June 6. But it has been less clear about how rapidly its key interest rate will fall in what remains of 2024.
"We become increasingly confident that inflation will return to target in a timely manner," said Klaas Knot, who is also a member of the ECB's governing council. "Policy rates will slowly but gradually move to less restrictive levels. The precise timing, speed and scale of easing will also follow a data-dependent approach."
Knot said that economic models that balance the need to bring inflation down without a large cost in terms of lost output suggest the key rate should fall three to four times this year.
But he said recent data indicates that wages are still rising rapidly and that the anticipated slowdown is likely to be "bumpy."
"Although these interest rate scenarios can provide useful guidance, given the current environment we still have to avoid any commitments on a specific future rate path," he said in a speech delivered to bankers in London.
Write to Paul Hannon at paul.hannon@wsj.com
(END) Dow Jones Newswires
05-28-24 1016ET
