Bostjan Vasle, Governor of the Central Bank of Slovenia and European Central Bank's Governing Council Member, said that market expectations of an ECB interest rate cut in March or April are premature, both with regard to the start of cuts and the totality of moves. He warned that the ECB needs to wait until spring and then it will be able to reassess the prospects for its monetary policy.
Vasle said that given the fall in eurozone bond yields and expectations of a 1.5% rate cut in 2024, financing conditions may no longer be tough enough and incompatible with the position needed to return inflation to the 2% target.
Markets now see a 50% chance of a rate cut in March while a cut is fully priced in by April and more than two moves are seen by June. But Vasle pointed out that the ECB may have to wait until the end of the first quarter to even consider reconsidering its position.
"We will receive a limited amount of new data before the January meeting, so we will not receive more information about inflation, economic growth, fiscal policy and the labor market until March or April. We will need to better understand the main trends, and we also need new forecasts in order to make further decisions," Vasle said, adding that consumer inflation in the eurozone could increase again at the end of the year, and then remain in the range of 2.5%-3% during the first half of 2024.