The chief economist of the European Central Bank, Philip Lane, said in an interview with the Spanish press El Confidencial:
- Essentially what we said in April was that if our level of confidence in the overall return of inflation to our target improved, it would be appropriate to reduce 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 released GDP data for the first quarter reinforce my confidence that inflation will soon return to target. So today, my confidence level has improved compared to our April meeting. But of course we will receive more data by June.
Lane also talked about the euro if the Fed maintains its stance while the ECB cuts spending:
- If the question is whether events in the United States, including decisions by the Federal Reserve, affect the outlook for inflation and the economy in Europe, my point here is probably that we shouldn’t exaggerate this impact. The US economy and interest rates affect the Eurozone in different ways, and these mechanisms essentially work in opposite directions. Some are considering the possibility of a depreciation of the euro against the dollar, but on the other hand, if the US bond market offers high interest rates, this will put upward pressure on bond yields in Europe , which would basically have the opposite effect of depreciation. Thus, when these effects are added together, the net impact on the European economy is, for the most part, contained. This is an example where the impact of the exchange rate must be measured against any impact of the bond market. And we will do this at every meeting before, during and after the summer.
This article was written by Eamonn Sheridan at www.forexlive.com.
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