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Here’s when the ECB will cut rates

2 months ago babelfish

Here's when the ECB will cut rates

What has the ECB decided and what will the European Central Bank's next steps be? The comment by Antonio Cesarano, Chief Global Strategist of Intermonte

Below is a summary of the main topics touched on during the ECB meeting this week:

The ECB presented updated estimates on GDP and inflation, where, in particular, the downward revision of inflation emerges especially for 2025 (from 2.1% to 2% for general inflation) and for 2026 (from 2.1 to 2% for core inflation).

The risks to growth are to the downside
On the topic of timing and extent of the rate cut, Lagarde declared:
we will have more data in April but much more in June.
market expectations (editor's note: they now estimate 4 cuts for 2024 starting in June) are converging with the ECB scenario.
On the topic of the new monetary policy framework (according to rumors it should include: 1) the transition to the use of a single rate which would represent the floor for market operations for open market operations; 2) possible news on the topic of compulsory reserves/remuneration of excess reserves) Lagarde postponed everything to the official presentation of the framework on 13 March.
On the topic of wage dynamics: signs of moderation are starting to emerge thanks also to the fact that companies are not passing the increases on to the cost of final products, reducing profits.

IN SUMMARY

The joint reading of the downward revision of inflation estimates and Lagarde's words confirm the hypothesis that the season of rate cuts will begin no earlier than the wage data at the end of April.
Therefore, the hypothesis outlined in the outlook for the ECB (and also for the Fed) of 4 cuts in 2024 starting from June (eventually the start would be postponed to July at the latest) remains confirmed.
On March 13, it will be important to monitor the details contained in the new monetary policy framework, in particular whether changes will be made to the size of reserve requirements and/or the remuneration of excess reserves.

OPERATIONALLY

  • The scenario of a decreasing trend in rates for the year remains confirmed, with accentuation from the second quarter/half-year
  • The dollar could return to the 1.10 area in the second quarter, in view of the Fed which could announce new liquidity measures/QT reduction as early as March/April, i.e. a slowdown in the decline in the balance sheet, in view of:
    • expiry of the BTFP Line (11 March).
    • resetting of the reverse repo.

This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/economia/ecco-quando-la-bce-tagliera-i-tassi/ on Sat, 09 Mar 2024 06:52:42 +0000.