ECB Holds Interest Rates, June Could See First Cut

The
interest
rate
decision
had
been
widely
expected,
and
two
thirds
of
economists
now
predict
a
first
rate
cut
in
June.
The
main
refinancing
operations
and
the
interest
rates
on
the
marginal
lending
facility
and
the
deposit
facility
were
left
unchanged
at
4.50%,
4.75%
and
4.00%
respectively.

The
ECB
remained
silent
as
to
when
rates
may
be
cut.
In
the
US,
Fed
chairman
Jerome
Powell
emphasised
on
Wednesday
that
there
was
no
hurry
to
cut
interest
rates.

First
ECB
Rate
Cut
in
June?

The
language
in
today’s
statement
accompanying
the
rate
decision
will
interest
investors,
said
Michael
Field,
European
market
strategist
at
Morningstar.
“We
believe
there
has
been
a
discernible
change
in
the
tone
used,
in
particular
around
the
danger
of
inflation.
This
would
indicate
that
the
ECB
is
softening
its
stance
on
rates,
ultimately
preparing
markets
for
a
cut,
which
will
likely
come
sooner
rather
than
later.“

With
the
European
economy
teetering
on
recession,
Field
believes
the
ECB
must
now
balance
the
(outside)
risk
of
resurgent
inflation,
with
the
potentially
more
pressing
need
to
ensure
the
economy
doesn’t
enter
a
prolonged
recession.
“As
such,
June
seems
like
a
reasonable
compromise
for
the
first
interest
rate
cut.”

The
ECB
revised
down
its
inflation
outlook,
in
particular
for
2024,
which
mainly
reflects
a
lower
contribution
from
energy
prices.
The
bank
projects
inflation
to
average
2.3%
in
2024,
2.0%
in
2025
and
1.9%
in
2026.
The
projections
for
inflation
excluding
energy
and
food
(core
inflation)
have
also
been
revised
down
and
average
2.6%
for
2024,
2.1%
for
2025
and
2.0%
for
2026.

“Although
most
measures
of
underlying
inflation
have
eased
further,
domestic
price
pressures
remain
high,
in
part
owing
to
strong
growth
in
wages”,
the
ECB
says.
“This
softening
in
language
we
believe
is
justified
given
all
the
data
points
we
have
to
hand,”
Field
says.

Inflation
in
the
eurozone
fell
to
2.6%
year
on
year
in
February,
down
from
2.8%
in
January.

“Overall,
the
fight
against
inflation
in
the
eurozone
is
on
the
right
track,”
said
Ulrich
Kater,
Chief
Economist
at
DekaBank.
“However,
this
is
not
yet
over,
as
the
ECB
cannot
be
satisfied
with
‘almost’
reaching
its
inflation
target
of
2%
…
interest
rate
cuts
from
June
onwards
remain
likely,
even
if
the
pace
could
be
slower
and
more
cautious
than
many
market
participants
would
like.”
The
hope
of
interest
rate
cuts
is
also
fuelled
by
the
weakening
economic
outlook
for
the
20-country
eurozone,
as
the
central
bank’s
forecast
shows.

How
Will
Interest
Rate
Cuts
Affect
European
Investors?

Equity
markets
tend
to
rise
on
anticipated
rate
cuts,
while
bond
markets
tend
to
suffer.
On
the
other
hand,
with
interest
rates
aleady
being
high,
falling
interest
rates
also
mean
lower
bond
yields,
which
pushes
bond
prices
higher.
And
lower
rates
make
existing
bonds,
and
particularly
those
already
issued
during
a
period
of
high
rates,
more
attractive
for
yields.

Meanwhile
cash
savings
rates
on
bank
accounts
will
likely
decrease,
meaning
savers
may
start
to
get
less
for
their
holdings
at
the
bank.
On
the
other
hand,
lower
rates
will
also
make
consumer
debt
and
mortgage
rates
cheaper.
In
its
latest
Economic
Bulletin,
the
ECB
said
lending
rates
on
business
loans
declined
slightly,
to
5.2%
in
late
2023,
while
mortgage
rates
increased
further
to
4.0%.

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