ECB’s Lane says Confidence on getting inflation lower is improving

European Central Bank chief economist, Philip Lane, spoke in an interview in Spanish press, El Confidencial:

  • What we said in April was essentially that if our level of confidence in the overall return of inflation to our target improved, it would be appropriate to reduce the current level of interest rates. There are still several weeks until the June meeting, but the April data is important. Both the preliminary estimate of eurozone inflation in April and the published GDP data for the first quarter improve my confidence that inflation will soon return to the target. So today my confidence level has improved compared to our April meeting. But of course we will receive more data between now and June.

Lane also spoke on the euro if the Fed holds while the ECB cuts:

  • If the question is whether events in the US, including the decisions of the Federal Reserve , affect the outlook for European inflation and the economy, my perspective here is probably that we should not exaggerate that impact. The US economy and interest rates affect the euro area in different ways, and essentially these mechanisms work in opposite directions. Some consider the possibility of a depreciation of the euro against the dollar, but on the other hand, if the US bond market offers high interest rates, that will put upward pressure on bond yields in Europe, which which would basically have the opposite effect of depreciation. So when those effects are added up, the net impact for the European economy is, for the most part, contained. It is an example in which the impact of the exchange rate must be measured against any impact of the bond market. And we will do this at every meeting before, during and after the summer.

This article was written by Eamonn Sheridan at www.forexlive.com. Source