The Governor of the Central Bank, Gabriel Makhlouf, has hinted that conditions could be right for a cut in interest rates in June.
In a blog on the Central Bank's website, Mr Makhlouf wrote that "the picture should be sufficiently clearer when the Governing Council meets in June to give us sufficient confidence to make monetary policy less restrictive".
Striking a note of caution, he said the history of monetary policy tells us that rushed decisions tend to be wrong decisions, adding that patience is a virtue. However, he said waiting for clear and unambiguous evidence is also not realistic. "We have to manage the uncertainty and make decisions on the evidence in front of us," he said.
Last week, the European Central Bank kept borrowing costs at record highs but took a first, small step towards lowering them, saying inflation was easing faster than it anticipated only a few months ago.
Having underestimated a sudden surge in prices two years ago, the ECB for the 20 countries sharing the euro has been reluctant to declare victory over what turned out to be the most brutal bout of inflation in decades.
Leaving its main interest rate unchanged at 4% as expected, the bank tweaked its message slightly to reflect a continued fall in inflation over the past one and a half years and new, lower economic projections.
The projection for economic growth in 2024 has been revised down to 0.6%, with activity expected to remain weak in the near term. Growth is expected to pick up to 1.5% in 2025 and 1.6% in 2026. Given downward revisions to growth, risks to the euro area growth outlook are to the downside in the near term.
Mr Makhlouf said, "Given the continued disinflation we have seen and progress on underlying inflation, it's becoming clear that there is scope for a change in our monetary policy stance, and, specifically, to make it somewhat less restrictive."
