The European Central Bank (ECB) should commence cutting interest rates in June if the gradual decline in inflation persists as anticipated, ECB policymaker Pablo Hernandez de Cos said on Tuesday, cited by Reuters. Despite a rapid fall in inflation over the past year, the future outlook is uncertain due to rising energy costs, persistently high service inflation, and ongoing geopolitical tensions. De Cos, who also heads the Spanish central bank, stated in the Bank of Spain's annual report that if the current inflation outlook is sustained, it would be fitting to start easing the current level of monetary policy tightening in June. He emphasised that the ECB would continue to adopt a data-dependent approach, making decisions at each meeting without pre-committing to a specific rate path. Regarding Spanish banks, De Cos revealed that the Bank of Spain is contemplating setting a "positive level" for banks' countercyclical capital buffer, currently at 0 per cent, and will soon announce its decision on whether to activate it. This buffer aims to mitigate or prevent cyclical risks caused by excessive credit growth by requiring lenders to build insurance reserves during periods of strong growth, which would then be accessible in a downturn.
