FRANKFURT, April 11 (Reuters) - The European Central Bank held borrowing costs at a record high as expected on Thursday but signalled it may soon cut interest rates, even as investors increasingly questioned whether its U.S. counterpart will follow along.
The ECB has kept interest rates steady since September but has long signalled that cuts were coming into view, with policymakers awaiting a few more comforting wage indicators to accompany benign inflation figures before pulling the trigger.
Despite Wednesday's hotter-than-expected U.S. inflation print, it underlined that message with new wording in its regular statement on policymakers' deliberations.
"If the Governing Council's updated assessment of the inflation outlook, the dynamics of underlying inflation and the strength of monetary policy transmission were to further increase its confidence that inflation is converging to the target in a sustained manner, it would be appropriate to reduce the current level of monetary policy restriction," the ECB said.
In her press conference, ECB President Christine Lagarde acknowledged the relevance of developments in the U.S. economy to its policy-setting but also stressed that conditions in the euro zone were different.
"We are data-dependent, not Fed-dependent," she said.
Lagarde said that "just a few" members of the Governing Council believed it was already time to loosen policy but had agreed to rally to the consensus to wait. She said the bank would have more information and issue new inflation and growth projections in June.
Earlier, the ECB said incoming information broadly confirmed its previous inflation assessment, while wage growth was moderating and firms were absorbing more of the labour cost increases via their profit margins.
Nevertheless, domestic price pressures were strong and keeping services price inflation high, it noted.
Analysts believe the biggest complication could be if the U.S. Federal Reserve delays its own policy easing to maintain the battle against inflation. The world's biggest central bank generally sets the tone for global financial markets.
But even that would only slow and not stop the ECB, given a widening gap in performance between the U.S. economy and that of the 20-country euro zone, they argue.
"The ECB will keep a close eye on the Fed. If the Fed doesn't cut this year, that limits the scope for ECB cuts to perhaps two," Arne Petimezas, senior analyst at Amsterdam-based AFS Group, said.
After the ECB decision, money markets priced around a 70% chance of a 25 basis point rate cut in June, compared to a roughly 80% chance earlier on Thursday.
The currency bloc is now in its sixth straight quarter of economic stagnation and the labour market is starting to soften.
The U.S. economy, on the other hand, continues to grow above trend, its labour market remains tight and inflation rose more than expected last month, raising the risk of price growth getting stuck.
Markets have priced in 75 basis points of ECB interest rate cuts this year, or two moves beyond June, which could come in September and December, when the ECB also publishes new staff economic projections.
Supporting the case for rate cuts, consumer price inflation fell to 2.4% last month and could ease back to the ECB's 2% target before year-end, ahead of the bank's own 2025 projection.
Meanwhile rapid wage growth, seen by the ECB as the single biggest inflation threat, is slowing, labour markets are softening, investment is weak and bank lending stagnant - all pointing to a further decline in price pressures.
This outlook is in stark contrast to the United States, where rate cuts have been priced out in recent weeks given robust labour market data and stubborn price pressures.
Editing by Catherine Evans
