ECB Needs To Confront Rate Reality Sooner, Not Later
Officials have successfully pushed back on expectations for how swiftly borrowing costs will drop, but they need to acknowledge that policy will eventually have to ease.
Clouds are gathering over the euro region’s economic outlook.
Photographer: Alex Kraus/BloombergThe Governing Council of the European Central Bank has made a collective push to get the message across that interest-rate cuts won’t happen in the first quarter — but it does need to acknowledge that monetary policy easing is coming. The jawboning is working, with a move in March now viewed as unlikely. However, a consensus might be built around a first reduction in June.
But the ECB shouldn’t feel this is somehow mission accomplished. The minutes from the last meeting in December noted concern from some policymakers that growth estimates were too optimistic. If the euro-area economy, already teetering on recession, weakens further, the ECB’s competence will come under fire. Getting policy wrong twice in a row — having been too slow to react to soaring inflation and then keeping borrowing costs too high for too long — isn’t a great look.