ECB rate cut in June looking more certain, what follows less so- Reuters poll By Reuters


By Indradip Ghosh

BENGALURU (Reuters) – The European Central Bank will cut interest rates in June, according to a majority of economists in a Reuters poll, but only a handful expect a cut of 100 basis points or more in 2024.

Although several ECB policymakers have supported rate cuts, most notably in June, President Christine Lagarde said the bank could not commit to following through on the first cut and more.

The pace of reduction may depend more on economic data, especially inflation, still above the figure of 2% at 2.6% in February. Payroll growth will also play a role.

All 77 economists in a March 25-28 Reuters poll expect the ECB to keep interest rates unchanged at 4.00% on April 11. About 90%, 68 respondents, predicted that the first cut will come in June.

This is in line with market prices, and a significant increase compared to last month’s survey.

“The central bank has indicated that June is the best time to cut rates, but the path after that will be very uncertain and the pace of cuts will depend on data,” said Marco Valli, head of European finance at UniCredit.

“We think the ECB will want to tread carefully and we confirm our expectation that there will be three cuts of 25bp this year, one per quarter, followed by similar steps next year to a neutral rate, perhaps in the region of 2%.”

The US Federal Reserve is also expected to start cutting rates in June, although there was a big risk it could wait until the end of the year.

Only nine out of 77 economists in a recent Reuters poll said the ECB would wait until after June to start cutting rates.

However, 19 of the 34 respondents to the additional question said that the first cut was likely to come later than expected, not earlier.

Inflation will moderate in the coming quarters but will not reach the central bank’s 2% rate until Q2 2025, the survey showed.

The number of wages – the salary of an employee – is currently rising at an annual rate of 4.6% and remains above the level of 3% that the ECB considers to be consistent with 2% inflation.

THERE IS NO BETTER VIEW THAN JUNE

However, there was no clear consensus on the rate hike the ECB would make this year. More than half, 39 of the 77 economists, expected a score of 100 points or less. Another 38 reported 75 points or less.

In a Reuters poll last month, about 56% predicted 100 basis points or more.

Nineteen of the 34 respondents said it was likely that this year would be less than expected, while the rest said more.

“We are in this situation where the economy is moving around and where inflation, or even a very strong recession, will not change growth,” said Carsten Brzeski, global head of ING. “This is why I expect the ECB to be cautious and slow.”

The latest business survey shows that economic activity in the 20-nation euro area has also increased since the beginning of the year, encouraging the ECB to wait longer.

Euro zone economic growth, which was stable in the previous quarter, was seen at 0.1% and 0.2% in Q1 and Q2, respectively, and about 0.5% this year and 1.3% next.

(For more news from the Reuters Global Economic Poll 🙂

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