The rise in the inflation rate registered in May in the eurozone will not be an obstacle for the Governing Council of the European Central Bank (ECB) to begin to reverse this Thursday the degree of restriction of its monetary policy with a first drop in interest rates. interest 25 basis pointsaccording to the consensus of analysts, reinforced by the messages that have been telegraphed these weeks from Frankfurt.
In this sense, the different representatives of the ECB board of directors who have recently commented on what the institution’s decision could be have made it clear that, in the absence of surprises, a first reduction in June would be appropriate and, as the vice president of the entity himself advanced , Luis de Guindos, with a magnitude of 25 basis points.
For his part, the ECB’s chief economist, Irishman Philip Lane, also made it clear last week that the institution will be in a position to lower interest rates at its meeting on Thursday, although he warned that monetary policy will need to remain on the ground. restrictive for the rest of the year.
At its April meeting, the Governing Council of the ECB left the three interest rates stable at 4.50% for refinancing operations, while the deposit rate stands at 4% and that of the lending facility at 4.75%.
If the expected drop in the price of money is confirmed on Thursday, it would be the first rate cut in the eurozone since September 2019when the ECB reduced the rate of its deposit facility, while leaving its refinancing and loan rates unchanged, which have not fallen since March 2016.
In this sense, Riccardo Marcelli Fabianisenior economist at Oxford Economics, considers that the increase in eurozone inflation in May does not mean that the deflationary process has stopped and “will not prevent the June interest rate cut”, although he warns that “it is unlikely to lower interest rates at the July meeting.
In a similar vein, from ING Research, Bert Colijnsenior economist for the eurozone at the entity, points out that the May inflation data serves as a warning that the ECB’s decision at its meeting on Thursday “may not mark the beginning of a traditional cut cycle” and the question will be ” How many cuts can follow?
In the face of such uncertainty, Rubén Segura-CayuelaBank of America’s chief economist for Europe, does not hesitate to express his confidence that a 25 basis point cut should be confirmed on Thursday, followed by another 75 basis points of cuts in 2024 and an adjustment of 125 basis points in 2025. .
«We expect the ECB to cut the three official interest rates by 25 basis points next week. “This should be the first cut of 25 basis points of the 200 basis points of relaxation between June 2024 and July 2025,” he anticipates, adding that the press conference is likely to indicate that there is no pre-established path and that the form If we proceed it will be meeting by meeting.
In this sense, the economist hopes that Lagarde will once again point out that there will be a little more information in July and much more in September, “a clear sign that it is more likely that the next movement will be in September than in July.”
On your side, Ulrike KastensEuropean economist at DWS, assures that, regarding Thursday’s meeting, “essentially, everything has already been said”, since almost all Council members have spoken in favor of a possible reduction in interest rates in June.
However, the expert emphasizes that what matters even more is the path forward, since, although the ECB is willing to “eliminate the maximum level of restriction”, as it said Philip Lanethere is no doubt that some central bankers may already favor another taper in July, while others prefer a more cautious approach.
“A hawkish tone is likely to prevail, emphasizing data dependence and a meeting-by-meeting approach,” anticipates Kastens, who hopes Lagarde will avoid explicitly committing to another rate cut in July. “Overall, we maintain our forecast of three more rate cuts until the end of March 2025,” he bets.
