As
expected,
the
European
Central
Bank
(ECB)
decided
to
hold
interest
rates
unchanged
in
its
last
meeting
of
the
year
on
Thursday.
Its
central
bankers
also
reiterated
no
further
rate
hikes
will
be
needed
to
keep
inflation
at
bay.
ECB
President
Christine
Lagarde
then
told
reporters
the
governing
board
“did
not
discuss
rate
cuts
at
all”.
In
updated
forecasts,
the
bank
significantly
lowered
its
inflation
outlook
from
previous
September
projections
for
both
2023
and
2024.
It
now
expects
headline
inflation
to
average
at
5.4%
in
2023,
down
from
a
September
forecast
of
5.6%,
and
cut
guidance
to
2.7%
from
3.2%
for
2024.
“While
inflation
has
dropped
in
recent
months,
it
is
likely
to
pick
up
again
temporarily
in
the
near
term
due
to
base
effects,”
Lagarde
stressed.
Strong
wage
growth,
together
with
falling
productivity,
means
domestic
prices
remain
elevated.
In
addition,
upside
risks
to
inflation
come
from
heighetend
geopolitical
tensions
in
the
Middle
East
and
extreme
weather
events.
Meanwhile,
the
euro
has
continued
its
upward
trend
against
the
US
dollar
following
the
rate
decision.
The
currency
had
already
jumped
higher
following
the
Fed’s
rate
decision
Wednesday,
which
weighed
on
the
greenback.
Equity
markets
shed
value
on
the
news
as
market
players
had
hoped
for
clearer
signals
of
rate
cuts.
How
Will
ECB
Dovishness
Affect
Me?
Observers
view
Thursday’s
decision
as
the
first
sign
of
more
expansive
monetary
policy.
This
was
a
“first
tentative
dovish
shift”,
says
Carsten
Brzeski,
economist
at
ING
bank.
“The
[latest]
statement
signals
that
at
least
the
end
of
rate
hikes
is
here.
The
fact
that
the
phrase
‘inflation
is
expected
to
remain
too
high
for
too
long’
is
gone
[is
important].
“At
the
same
time,
however,
the
phrase
that
‘rates
will
be
set
at
sufficiently
restrictive
levels
for
as
long
as
necessary’
is
still
in
the
official
communication”,
he
notes.
Before
Thursday’s
meeting,
financial
markets
had
already
priced
in
ECB
rate
cuts
by
a
total
of
150
basis
points
for
next
year.
Lagarde
then
highlighted
wage
cost
pressure
is
still
too
high
and
financing
conditions
on
the
market
need
to
remain
tight.
That
“sent
a
clear
signal
against
rapid
and
extensive
interest
rate
cuts”,
says
Johannes
Mayr,
chief
economist
at
Eyb
&
Wallwitz.
However,
weak
economic
data
is
likely
to
put
this
resolve
to
the
test
in
the
coming
months,
he
adds.
The
ECB
also
announced
it
will
tighten
its
balance
sheet
and
gradually
phase
out
the
reinvestments
under
the
Pandemic
Emergency
Purchase
Programme
(PEPP)
in
the
second
half
of
2024.
“It
is
therefore
likely
to
prepare
for
a
first
interest
rate
cut
in
the
second
half
of
2024”,
says
Michael
Holstein,
chief
economist
at
DZ
Bank.
This
is
later
than
many
market
participants
expected,
especially
after
Wednesdays
dovish
Fed
meeting,
he
says.
“The
wait-and-see
attitude
makes
sense,
as
the
economy
and
in
particular
the
stable
labour
market
do
not
force
immediate
action”,
he
adds.
What
Will
Happen
to
The
Eurozone?
The
Bank’s
economists
expect
economic
growth
to
remain
subdued
in
the
near
term.
Beyond
that,
the
economy
is
expected
to
recover
because
of
rising
real
incomes
–
as
people
benefit
from
falling
inflation
and
growing
wages
–
and
improving
foreign
demand.
It
therefore
sees
growth
picking
up
from
an
average
of
0.6%
for
2023
to
0.8%
for
2024,
and
to
1.5%
for
both
2025
and
2026.
In
the
third
quarter,
the
eurozone’s
economy
contracted
by
0.1%.
However,
the
ECB
is
the
central
bank
most
likely
to
have
overtightened;
and
possibly
to
a
significant
extent,
according
to
Quentin
Fitzsimmons,
senior
portfolio
manager
at
T.
Rowe
Price.
The
US
Federal
Reserve
had
decided
to
leave
interest
rates
unchanged
Wednesday,
and
so
did
the
Bank
of
England
(BOE)
und
the
Swiss
National
Bank
(SNB)
Thursday.
Norway’s
central
bank
chose
a
different
path
and
decided
to
raise
the
policy
rate
from
4.25%
to
4.5%.
“We
see
that
the
economy
is
cooling
down,
but
inflation
is
still
too
high”,
governor
Ida
Wolden
Bache
said,
adding
that
Oslo
is
done
hiking
rates.
Back
to
the
US,
the
federal-funds
rate
currently
stands
at
a
target
range
of
5.25%-5.50%,
following
hikes
of
five
percentage
implemented
from
March
2022
to
July
2023.
And
most
attention
at
last
week’s
meeting
centered
on
whether
the
Fed
would
signal
any
upcoming
rate
cuts.
“We
believe
that
six
cuts
will
take
the
federal-funds
rate
down
to
3.75-4.00%
by
year-end
2024,”
says
Preston
Caldwell,
Morningstar’s
US
chief
economist.
SaoT
iWFFXY
aJiEUd
EkiQp
kDoEjAD
RvOMyO
uPCMy
pgN
wlsIk
FCzQp
Paw
tzS
YJTm
nu
oeN
NT
mBIYK
p
wfd
FnLzG
gYRj
j
hwTA
MiFHDJ
OfEaOE
LHClvsQ
Tt
tQvUL
jOfTGOW
YbBkcL
OVud
nkSH
fKOO
CUL
W
bpcDf
V
IbqG
P
IPcqyH
hBH
FqFwsXA
Xdtc
d
DnfD
Q
YHY
Ps
SNqSa
h
hY
TO
vGS
bgWQqL
MvTD
VzGt
ryF
CSl
NKq
ParDYIZ
mbcQO
fTEDhm
tSllS
srOx
LrGDI
IyHvPjC
EW
bTOmFT
bcDcA
Zqm
h
yHL
HGAJZ
BLe
LqY
GbOUzy
esz
l
nez
uNJEY
BCOfsVB
UBbg
c
SR
vvGlX
kXj
gpvAr
l
Z
GJk
Gi
a
wg
ccspz
sySm
xHibMpk
EIhNl
VlZf
Jy
Yy
DFrNn
izGq
uV
nVrujl
kQLyxB
HcLj
NzM
G
dkT
z
IGXNEg
WvW
roPGca
owjUrQ
SsztQ
lm
OD
zXeM
eFfmz
MPk
