De Guindos resolves the markets’ doubts and announces that the ECB will lower interest rates by 25 basis points in June

De Guindos resolves the markets’ doubts and announces that the ECB will lower interest rates by 25 basis points in June
De Guindos resolves the markets’ doubts and announces that the ECB will lower interest rates by 25 basis points in June

Luis de Guindos, vice president of the European Central Bank. REUTERS/Brendan McDermid

The Governing Council of European Central Bank (ECB) will lower the interest rates 25 basis points at its meeting on June 6, until placing the price of money in the 4.25% from the current 4.50%, as anticipated by its vice president Luis de Guindos.

As he stated in an interview with the Austrian newspaper ‘Oberösterreichische Nachrichten’, “we are adopting a cautious approach, “which favors a 25 basis point reduction in interest rates.”

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Regarding the number of rate cuts that the supervisor will undertake throughout the year and their amount, De Guindos did not want to comment, and assures that the ECB has not made any decision in this regard at the moment due to the high uncertainty that exists.

A relevant factor that will affect the next movements of the Eurobank will be the behavior of the inflation in the eurozone, which after three consecutive months of falls remained at the 2.4%, while the Underlying inflationwhich excludes energy, food and tobacco because they are more volatile, continued its downward path and fell two tenths, up to 2.7%.

What De Guindos has ruled out is that the ECB considers the possibility of carrying out new interest rate increases, since it expects that inflation will fluctuate in the short term, but will converge in a sustainable way towards the 2% in 2025a percentage at which the euro’s defense body aims to curb inflation.

Recognizes that there are risks that may jeopardize the achievement of this objective related to the salary evolution and its impact on productivity, unit labor costs and lower profit margins, to which is added the geopolitical uncertainty derived from the war in Ukraine and the conflict in the Middle East, in addition to possible tensions in Southeast Asia.

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In his opinion, “we must continue to be very cautious. Nothing is predetermined in terms of cuts or changes in interest rates,” she indicated.

The vice president of the eurobank is optimistic about the economic growth of the euro zone and recognizes that it will gain strength in the coming months. But he is cautious about the financial stability in the eurozone, as recognized in the presentation of the semi-annual stability report.

It recognizes that financial stability has benefited from the region’s improved economic situation, however, its prospects remain “fragile” because the margin for economic and financial disturbances is high in an environment of great geopolitical uncertainty.

Diversify your investment in bills and deposits at different terms: the best strategy in the face of lower interest rates.

He acknowledged that “geopolitical risks continue to cloud the prospects for financial stability” and that “although financial stability conditions have improved in line with the reduction in recession risks and the decline in inflation, it remains crucial that we still strengthen plus the resistance capacity of the Finance system”.

The ECB report emphasizes that financial markets continue to be vulnerable to new shocksas although the easing of monetary policy has boosted investor optimism, sentiment could change quickly.

 
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