Lagarde to announce first interest rate cut in eurozone

This Thursday, the European Central Bank (ECB) is expected to take the first step in easing its monetary policy, cutting interest rates by 25 basis points to 4.25%, almost two years after starting a tightening cycle to fight inflation, according to analysts’ opinion. . The deposit rate will drop to 3.75%.

“We were very open 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 now stand at 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 4%. .

If analysts’ expectations and what the ECB has implied in recent months are confirmed, it will 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 will be at next meetings,” said Cristina Gavin, head of fixed income at Ibercaja Gestión.