Quiver Quantitative - The European Central Bank (ECB) may consider its first interest rate cut around mid-2024, later than what investors are currently anticipating, according to Governing Council member Martins Kazaks. Kazaks suggested that a spring rate cut seems premature, and any decision on rate adjustments will hinge on the economic conditions at the time. These sentiments were echoed by ECB members such as Francois Villeroy de Galhau and Gediminas Simkus, who stressed the importance of patience in rate adjustments to avoid reigniting inflation.
Despite the ECB's pause on rate hikes after a year of policy tightening, ECB President Christine Lagarde did not discuss rate cuts in their recent meeting. This stance aligns with market speculation of a dovish shift following similar trends in the Federal Reserve's policies. However, the ECB's approach towards rate cuts will be guided independently of the Fed's actions, relying instead on incoming data and economic indicators.
Market Overview: -European Central Bank officials push back against market expectations of imminent rate cuts, highlighting inflation concerns and advocating for continued patience. -Governing Council member Martins Kazaks predicts a mid-2024 timeline for first cut, later than investors anticipate. -Francois Villeroy de Galhau stresses importance of maintaining current 4% rate until inflation is decisively tamed. -Lithuanian and Croatian central bankers warn against premature easing, while acknowledging softening inflation pressures.
Key Points: -Despite signs of slowing inflation, ECB remains wary of early rate cuts, prioritizing price stability over economic growth. -Data suggesting a modest downward trend in inflation falls short of warranting immediate policy shift. -Governing Council emphasizes data-driven approach to future rate decisions, independent of actions taken by the Federal Reserve. -Economic forecasts predict ongoing decline in inflation, reaching 1.8% by 2025, but foresee sluggish economic growth in 2024.
Looking Ahead: -Patience becomes the watchword for markets as ECB holds rates steady for foreseeable future. -Mid-2024 emerges as tentative timeframe for potential first rate cut, contingent on inflation data. -Focus shifts to ECB's December meeting for updated economic projections and further clues on monetary policy path. -Balancing inflation control with economic needs remains a delicate dance for the central bank.
Inflation in the Eurozone is showing signs of slowing down, inching closer to the ECB's target, with annual inflation confirmed at 2.4% in November and a monthly decrease of 0.6%. These figures align with the ECB's expectations of inflation easing to an average of 1.8% by 2025. While rate increases have contributed to economic deceleration, the Bank of France's forecast suggests a modest growth of 0.9% in 2024, indicating a potential 'soft landing' rather than a severe recession. This scenario supports a cautious approach to interest rate adjustments, with the ECB likely maintaining stability before considering a cut in 2024.
This article was originally published on Quiver Quantitative