THE European Central Bank (ECB) is increasingly confident that wage growth is slowing back towards more normal levels, potentially opening the door to rate cuts, its chief economist Philip Lane said in a podcast published on Monday (Mar 25).
The ECB has long pointed to rapid wage growth as a source of concern and says that cutting rates from record highs becomes possible once data starts showing the long-forecast moderation in wage demands.
“It’s desirable and inescapable that we do have several years of wage increases above a normal level,” Lane said. “But what we need to make sure… it returns to normal.”
“I would say we’re confident that it’s on track,” he added.
Lane said that once the ECB becomes more confident that wage growth is slowing and inflation is indeed heading back to the 2 per cent target as projected, it can start discussing rate cuts.
“If this assessment is confirmed, then we will start looking more closely at reversing some of the rate increases we’ve made,” he said.
Markets now see 90 basis points of rate cuts this year with the first move expected either in June or July. REUTERS
