VILNIUS – The European Central Bank could cut interest rates more than three times this year and the reductions should not be held back if the U.S. Federal Reserve delays its own cuts, Lithuanian policymaker Gediminas Simkus said on Monday.
Simkus, making some of the most dovish comments since the ECB’s policy meeting on Thursday, also said the bank could lower its 4% deposit rate in both June and July.
“There is a more than 50% probability that there will be more than three rate cuts this year,” Simkus told reporters in Vilnius. “Three rate cuts is a conservative estimate.”
The ECB put a rate cut for June on the table last week but ECB President Christine Lagarde said the bank was not signalling any move beyond that, given uncertainty for both growth and inflation.
Markets price just three cuts this year as expectations have retreated in recent weeks after unexpectedly high U.S. inflation data pushed Fed rate cut bets out until the autumn.
“I see a nonzero probability that interest rate cut could also be in July,” Simkus said.
Simkus played down the impact of Fed decisions, arguing that the ECB will make independent decisions and the only issue at play is how a diverging rate trajectory impacts the real economy.
“I reject the idea that eurosystem is taking decisions based on what U.S. policymakers are doing. There is no connection there.”
“But obviously policy divergence changes trade conditions and economic development in both jurisdictions. This is reflected in forecasts and monetary policy decisions,” Simkus added.
Simkus argued that economic surprises are unlikely to overwrite plans for a June rate cut but said that an unexpected escalation of global political tensions could still impact the ECB’s plans.
