ECB starts cutting interest rates

Frankfurt (Germany) (EFE). This Thursday, the European Central Bank (ECB) is expected to take the first step to ease its monetary policy, cutting interest rates by 25 basis points to 4.25%, almost two years after the start of its monetary policy. According to analysts, the tightening of the anti-inflation cycle.

“We were very transparent about the decision at the June meeting. And we are taking a cautious approach, which would argue for a 25 basis point cut,” ECB Vice President Luis de Guindos said in an interview in late May.

Both analysts and the market are discounting this decline in rates, which are now 4.5%, while the credit line (the rate at which banks lend overnight) is 4.75% and the deposit rate, which rewards excess overnight reserves , – at the level of 4%. .

If analysts’ expectations and what the European Central Bank has implied in recent months are confirmed, it would be the first rate cut since March 2016, when the price of money fell from 0.05% to 0%. The central bank subsequently cut the deposit rate by 10 basis points to -0.5% in September 2019.

Doubts about next steps

The ECB’s decision comes after eurozone inflation rose by two-tenths in May from April to 2.6%, with the base rate – excluding energy and fresh food – rising to 2.6% ( 0.9%).

Additionally, contract wages in the eurozone rose 4.69% in the first quarter and GDP emerged from a technical recession, although it rose just 0.3% between January and March, leaving analysts hesitant about the way forward.

“The main thing is not this week’s rate cut, but what the ECB’s path of action will be in the next meetings,” says Cristina Gavin, head of fixed income at Ibercaja Gestión.

Muzinich & Co noted that layoffs “may not be as frequent as expected at the beginning of the year.”

In this sense, ECB President Christine Lagarde already indicated several months ago that after the first fall they cannot commit themselves in advance to follow a specific path in this area.

Analysts at Allianz Global Investors, Carmignac, MFS and AXA IM agree that the ECB will make two more rate cuts before the end of the year, although they do not rule out just one.

On the other hand, A&G bond manager Germán García emphasizes that the evolution of monetary policy in the US Federal Reserve System (Fed) will also be relevant, which also has maximum rates.

The ECB will also update its forecasts for inflation and economic growth.