Governor Peter Kažimír: The Stage is Set

We’re at a pivotal crossroads. It’s a good place for the people and the economy. With us moving forward with a clear sense of our direction.

Encouragingly, inflation – a persistent spectre – shows signs of a sustained retreat. 

Even if the pace of inflation retreat stays more relaxed than last year’s, we’re heading in the desired direction. 

This promising development heralds an imminent shift in the economic landscape. A shift, that opens the door for the first rate cut in nearly five years.

Until now, high inflation rates have compelled us to maintain stringent controls and keep our key interest rates at record highs.  This story is writing its last chapter.

The current landscape, reinforced by incoming data, suggests that these controls could be gradually relaxed. The economic recovery is taking hold and will accelerate in the second half of the year. 

The economy has turned the corner.

This, however, is only a green light to reverse course on some fronts. Even after the first rate cut, our monetary policy will remain restrictive; it needs to.

We’re continue to live in the world prone to shocks. 

These risks could include a sudden increase in inflation, a global economic downturn, or a significant shift in consumer behaviour, among other things. By maintaining flexibility, we can adapt our policy to these changes and mitigate their impact on the economy.

For me, June is an opportunity to recalibrate our approach in the light of improving economic conditions.

While the stage is set for potential policy modifications, flexibility remains our watchword. We act and will act informed by incoming data and will adapt to their ebbs and flows. 

The notion of easing doesn’t imply a commitment to specific future cuts but rather an openness to respond in kind, should the economic data advocate for it.

Let’s be clear: we are not pre-committing to a definite path post-June.

We will maintain our prudence, stay committed and calm. We will respond in kind to any new challenges and risks that may arise. Our approach is not merely cautious but necessary. It ensures that our actions stabilize and stimulate the euro area economy and protect all Europeans.

To wrap up. Our approach should not be viewed as a pre-commitment to specific actions post-June.  The flexibility of our monetary policy must be preserved.