ECB cuts rates as Spanish economy continues to accelerate

He control of inflation in the medium termor, even despite the ups and downs, this is what allowed it to exist almost unanimity in the ECB council on this measure, which does not exist to ensure the timeliness of new downgrades not in a higher body government agencies, nor the market, where opinions on this issue differ.

The year started with market expectations that there will be four interest rate cutsbased mainly on the fact that economic growth in the eurozone is stagnant and that prices will fall faster than they currently do. Four falls in 2024 and three more next year.

As the months passed, those responsible for the ECB made it clear that they understood that the market was too optimisticexpectations were lowered and Now more and more people think that there will only be two cuts in the price of money this year. than those who believe that there will be three of them.

The ECB estimates that inflation dynamics will be slightly worse than expected three months ago.which suggests there are more doubts about future cuts.

The pressure exerted by the ECB on the economic cauldron was very high. Not so much because of the absolute increase in rates (at the moment real rates are at the level of 1.5%), but because the speed at which they rose. Something that doesn’t seem likely to happen in the opposite direction to what they’re currently starting.

Data

The reason put forward to justify this is that both service prices and agreed wage increases are clearly rising above inflation, although they are slowing. Decisions on new releases will be made at each meeting based on data available at any time.

That’s why, It is unlikely that a decision on a new reduction will be made at the next meeting in July, and there is a good chance that it will happen in September. (although doubts are beginning to arise) when ECB experts make new forecasts for inflation and the evolution of economic activity.

While waiting for this new data to arrive, the question arises: know the degree of rush the ECB may have reduce the price of money. Although The institution does not want to say what the goal of achieving a neutral interest rate is.It is currently assumed that this does not affect either positively or negatively the evolution of prices and economics across the market. ranges from 2% to 2.25% and this is where the base rate should go.

The inflation rate is falling, but not too quickly; With economic activity that is growing again with some intensity (The ECB raised its forecast for eurozone growth to 0.9%), and employment level that is higher than expected in the eurozone as a whole, The ECB is not under much pressure to cut rates quickly.

More demand for credit

But in any case, the expectation from a rate cut, regardless of its process, is that generate more demand for creditespecially from consumption and mortgage which will later be converted into business investments.

Although the recent decline has already been largely priced in by the market (banks, as expected, have adjusted the prices of their loans and slowed down payments on their obligations), The expectation of a sequential decline will also result in new asset and liability terms.

Growth in economic activity, along with maintaining employment and improving credit conditions, should allow keep default rates at current low levels so credit costs remain within reduced parameters.

Simultaneously with the ECB meeting International Monetary Fund published its annual report on the Spanish economy (Article IV), in which significantly increases growth forecast for this yearfrom the previous 1.9% to 2.4% as announced KaishaBank a week ago and with which, as expected, they will do so much Bank of Spain How BBVA next week when they release their new macroeconomic forecasts for this year. Possible clouds about the deterioration of the economy are dissipating.