(MENAFN) Clare Lombardelli, the chief economist of the Organization for Economic Cooperation and Development (OECD), anticipates that the euro area will likely implement interest rate cuts before the United States this year, reflecting disparities in the relative strengths of their respective economies. Lombardelli underscores the likelihood of increasing divergence in monetary policy across economies, particularly in terms of easing measures.
In an exclusive interview with a Turkish news agency, Lombardelli revealed insights from the OECD's Economic Outlook, stating that interest rates in advanced economies are projected to commence a downward trend starting from the second half of this year as inflationary pressures ease. This projection suggests a shift towards more accommodative monetary policy settings to counteract weakening inflation dynamics.
"We expect the rate cuts in the euro area in the third quarter of this year, but that might be brought forward depending on the (inflation) data. We are projecting rate cuts in the euro area both in the third and last quarter," she stated. "They may choose to make one or two, or they may choose to go a bit faster than that. But we are certain that by the end of 2025, we think policy rates in the euro area will have been reduced considerably from the numbers that we have seen now."
Since September 2023, the European Central Bank (ECB) has maintained its interest rates on the main refinancing operations, marginal lending facility, and deposit facility at 4.5 percent, 4.75 percent, and 4 percent respectively, indicating a period of stability in monetary policy.
Meanwhile, the US Federal Reserve is anticipated to embark on interest rate cuts around the third quarter of this year or later, as suggested by Clare Lombardelli. The timing of this decision hinges on the evolution of inflation data over the coming months, juxtaposed with the robustness exhibited by the US economy.
In its most recent announcement on Wednesday, the Fed reiterated its stance by maintaining the federal funds rate within a range of 5.25 percent to 5.5 percent. This level has remained unchanged since the July 2023 meeting, signaling a consistent approach to monetary policy amid evolving economic conditions and inflationary pressures.
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