ECB Policymakers See Gradual Easing if Inflation Falls as Expected

• The European Central Bank (ECB) could gradually reduce interest rates if inflation falls as expected, two ECB policymakers said on Wednesday. The ECB cut rates in June for the first time in the current cycle but has made no explicit commitment about its next move.
• Bank of Italy governor Fabio Panetta and his Finnish peer Olli Rehn confirmed this view, with only the slightest difference in tone between them.
• "The current macroeconomic picture is consistent with a normalisation of the monetary stance," Panetta told a Bank of Finland conference. "The ECB duly started this process a few weeks ago and, in the baseline scenario, it will pursue it gradually and smoothly."
• Rehn said current market expectations - which are for one or, more likely, two rate cuts by the end of the year - were "reasonable" but only "on the condition that the disinflationary process will continue as projected".
• The ECB sees inflation oscillating above its 2% target for the rest of this year, but sees a downward trend restarting next year, with price growth moving to 2% by the close of 2025. Markets broadly expect rate cuts in September and December, taking the ECB's deposit rate to 3.25% from its 4.0% peak. The ECB’s most recent cut to 3.75% occurred on June 6.

 (Source: Reuters)