ECB Delay Now Means More, Bigger, Faster Rate Cuts Ahead

Sometimes the promise of jam tomorrow isn’t enough. After keeping its 4% deposit rate on hold on Thursday, European Central Bank President Christine Lagarde indicated a cut is likely at the next gathering, on June 6. But if the central bank can be so convinced about its intentions, it should have the confidence to cut now and save itself a bigger problem down the road.

With “more information needed” becoming the mantra of policymakers everywhere, the ECB can argue that it makes sense to combine its first policy easing with its mid-year quarterly economic review. “In June we will get a lot more data and a lot more information,” Lagarde said. But how much more evidence is needed when March inflation came in lower than expected at 2.4%, with core inflation dropping below 3%. If central bankers wait until their 2% target is achieved, they may not be able to stop disinflation becoming deflation; recession has a highly depressive effect on price levels.