ECB to Hold Firm on Interest Rates

 

ECB’s policy announcement is scheduled today at 13:15PM GMT, with President Lagarde speaking in Frankfurt later this afternoon.

The European Central Bank is poised to maintain current borrowing costs for the third consecutive meeting, intensifying efforts to reassure investors that immediate plans for interest-rate cuts are not on the horizon.

Deposit rate is set to be left at 4% - but the question remains: for how long? President Lagarde has already hinted that summer reduction is “likely”.

Officials seem to be considering June as the earliest point to initiate monetary easing. In the meantime, they are seeking reassurance that inflation is on track to go back to the 2% target.

However, the market’s timeline differs, favouring an initial move in April – an expectation the ECB boss is likely to push back against once again.

Chief Economist Philip Lane believes information related to wage agreements will only be available by June’s meeting. Lane also expressed caution about adjusting interest rates too quickly, emphasising that such action can be “self-defeating”.

According to a Bloomberg survey, June will see the first of four 25-basis points cuts in 2024. However, it is important to note that the forecast differ widely from one analyst to another.

 

Some ECB officials have expressed concern that investors’ dovish pricing “threatened to loosen financial conditions excessively, which could derail the disinflationary process” at December’s policy meeting.

Even though markets have scaled back their anticipation for significant cuts in borrowing costs, they are still pricing in 133 basis points of moves this year.