Madis Muller, a member of the European Central Bank’s Governing Council and the chief of the Estonian central bank, has issued a cautious note regarding the timing of the first rate cut. Muller emphasized the need for patience, citing the ongoing strength in wage growth, which remains incompatible with the ECB’s 2% inflation target.
In an interview held in Ghent, Belgium, during a meeting of European finance ministers and central bank governors, Muller underscored the importance of waiting for sufficient data before considering a rate cut. He expressed a preference for assessing first-quarter data, which will only be available at the end of April, making it too late for the ECB’s monetary policy meeting at the start of the month.
One of the key factors influencing policymakers’ decision on interest rates is wage growth and labor costs. Strong pay growth has the potential to prolong higher inflation levels. Despite a slowdown in negotiated wage growth in the eurozone to 4.5% at the end of 2023, according to ECB data, policymakers remain vigilant.
While many officials view June as the most suitable time for easing monetary policy, there are differing opinions within the council. Muller cautioned against acting prematurely, highlighting the risks of making hasty decisions that may necessitate corrections later on.
Muller also commented on the complexities associated with decision-making during turning points in the economy. While acknowledging the euro area’s weaker-than-expected performance last year, he expressed optimism about signs indicating a potential turnaround, albeit with a delay of at least a quarter in the recovery process.
In summary, Muller’s remarks underscore the need for prudence and patience in adjusting monetary policy, particularly considering the evolving economic indicators and the ECB’s inflation target.
