ECB holds ‘retreat’ in Kilkenny before expected June rate cut

The European Central Bank (ECB) governing council is holding a two-day retreat at the Mount Juliet resort in Co Kilkenny on Tuesday and Wednesday, in its last gathering before a widely telegraphed rate cut in two weeks’ time.

The 26 members of the council, led by president Christine Lagarde and including Central Bank of Ireland governor Gabriel Makhlouf and the ECB’s Irish chief economist, Philip Lane, are staying at the hotel and golf venue amid heavy Garda security.

[ ECB’s Schnabel sounds cautious note on pace of rate cuts ]

Members of the council are expected to unofficially discuss the future pace of rate cuts on the sidelines of the gathering. However, it is focused on longer-term issues such as the ECB’s monetary policy strategy, which is up for review next year, and the role climate change considerations may play in its work in future.

A spokeswoman for the Central Bank of Ireland, which is hosting the retreat, declined to comment on the agenda.

The ECB kept its key deposit rate at a record high of 4 per cent in April but laid a path for a cut in June, following a series of rate hikes over the 15 months to last September in a bid to tackle inflation. The benchmark rate stood at minus 0.5 per cent before the hikes commenced in July 2022, while the ECB’s main lending rate was zero.

A number of ECB governing council members have subsequently signalled that a reduction on June 6th is all but a foregone conclusion, assuming no surprises on the inflation front in the meantime.

Ms Lagarde told RTÉ in an interview that there is a “strong likelihood” of a rate cut in June “if the data that we receive reinforces the confidence level that we have”.

“No predicament, no prescription, no commitment,” she told the broadcaster. “But it is a case that if the data that we receive reinforces the confidence level that we have – that we will deliver 2 per cent inflation in the medium term, which is our objective, our mission, our duty – then there is a strong likelihood.”

However, influential hawkish ECB board member Isabel Schnabel called for caution about further rate reductions in an interview published by Japan’s Nikkei newspaper last Friday.

Euro zone inflation had eased to an annual rate of 2.4 per cent in April from a peak of 10.6 per cent in late 2022, according to data from Eurostat, the EU’s statistics agency.

“I’m really confident that we have inflation under control,” Ms Lagarde told RTÉ.

While short-term debt markets – or money markets – had been pricing in the prospect of 1.5 percentage points of rate cuts this year in early January, they are currently predicting 0.67 of a point of reductions, according to Bloomberg data.

Meanwhile, the 125-bedroom Mount Juliet estate playing host to the ECB retreat, which also includes a Michelin-starred restaurant, was put up for sale last month with a price tag of €45 million by its owner, property investment firm Tetrarch Capital.