The
European
Central
Bank
(ECB)
left
its
key
interest
rate
unchanged
for
the
fifth
time
in
a
row
at
Thursday’s
meeting.
The
interest
rate
decision
had
been
widely
expected.
A
recent
Reuters
poll
had
90%
of
economists
predicting
no
first
interest
rate
cut
before
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.
European
stock
markets
and
the
euro
were
mostly
flat
after
the
ECB’s
statement.
In
a
press
conference
after
the
rate
announcement,
ECB
President
Christine
Lagarde
said
that
some
governing
council
members
supported
a
rate
cut
on
Thursday,
on
the
basis
of
encouraging
inflation
data
from
April.
They
eventually
fell
in
line
with
a
clear
majority
of
policymakers
who
backed
steady
rates
at
this
meeting,
Lagarde
added.
When
Will
the
ECB
Start
Cutting
Rates?
The ECB made
no
explicit
comment
on
when
rates
may
be
cut,
but
for
the
first
in
the
current
high-interest
cycle
said
it
would
be
appropriate
to
cut
rates
if
new
data
shows
inflation
is
returning
to
its
2%
target.
“If
the
Governing
Council’s
new
assessment
of
the
inflation
outlook,
the
dynamics
of
underlying
inflation
and
the
strength
of
monetary
policy
transmission
were
to
further
increase
its
confidence
that
inflation
is
converging
to
the
target
in
a
sustained
manner,
it
would
be
appropriate
to
reduce
the
current
level
of
monetary
policy
restriction”, the
press
statement
said.
“All
eyes
were
on
the
ECB’s
statement
today,
to
ascertain
whether
the
Fed’s
reservations
would
have
any
impact
on
the
ECB’s
future
interest
rate
decisions”,
said
Michael
Field,
European
market
strategist
at
Morningstar.
“Thankfully
for
European
investors
it
seems
the
ECB
is
happy
to
go
it
alone,
with
language
in
the
statement
sufficiently
vague,
but
with
no
indication
that
it
is
backing
away
from
cutting
rates
as
soon
as
June.”
“We
believe
this
course
of
action
is
entirely
pragmatic
given
the
economic
backdrop
in
Europe,”
he
added.
Economic
growth
is
weak,
with
the
ECB
themselves
forecasting
just
0.6%
growth
this
year.
Inflation
in
the
eurozone
fell
to
2.4%
year
on
year
in
March,
down
from 2.6%
in February,
putting
it
within
touching
distance
of
the
ECB’s
targeted
2%
level.
“We’ve
come
a
long
way
from
the
10.6%
highs
in
inflation,
witnessed
just
18
months
ago,
and
at
this
point
lower
interest
rates
seem
appropriate”,
Field
added.
In
a
written
comment,
ING
Global
Head
of
Macro
Carsten
Brzeski
also
predicted
a
rate
move
at
the
next
meeting:
“Even
if
the
policy
announcement
does
not
explicitly
mention
June
as
the
moment
for
a
first
rate
cut,
we
think
that
today’s
meeting
should
mark
the
final
stop
before
the
cut.
In
fact,
the
ECB
has
gone
through
a
very
gradual
transition
of
its
communication
since
December,
turning
from
hawkish
to
dovish.”
ECB
president
Christine
Lagarde
said
most
measures
of
underlying
inflation
are
easing,
wage
growth
is
gradually
moderating,
and
firms
are
absorbing
part
of
the
rise
in
labour
costs
in
their
profits.
In
the
US,
expectations
for
Federal
Reserve
rate
cuts
in
2024
collapsed,
following
a
hotter-than-expected
inflation
report.
In
the
bond
market,
expectations
now
center
on
the
Fed
making
its
first
cut
in
the
federal-funds
rate
in
September.
If
the
Fed
does
not
cut
rates
in
June,
the
market
reaction
to
the
policy
divergence
might
negate
much
of
the
benefit
of
an
ECB
cut.
In
addition,
if
the
ECB
cuts
key
interest
rates
earlier
and
lower
than
the
Fed,
the
interest
rate
gap
between
the
USA
and
the
eurozone
will
widen.
This
will
push
down
the
euro
against
the
US
dollar
and
inevitably
have
an
impact
on
capital
flows
and
inflation.
How
Will
Interest
Rate
Cuts
Affect
Markets?
Equity
markets
tend
to
rise
on
anticipated
rate
cuts,
while
bond
markets
tend
to
suffer.
On
the
other
hand,
with
interest
rates
already
high,
falling
interest
rates
also
mean
lower
bond
yields,
which
pushes
bond
prices
higher.
Lower
rates
also
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,
to
the
detriment
of
savers.
Borrowers,
by
contrast,
stand
to
benefit
from
lower
rates
as
consumer
debt
and
mortgages
become
cheaper.
In
its
latest
Economic
Bulletin,
the
ECB
said
lending
rates
on
business
loans
have
already
declined
slightly,
to
5.2%
in
late
2023,
while
mortgage
rates
increased
further
to
4.0%.
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