The ECB will keep rates, but is already talking about when to start cutting them

Markets expect sharp cuts in interest rates this year and starting next spring.

The board of the European Central Bank (ECB) will maintain current official interest rates at its meeting on the 25th, but it is possible that it will begin to more or less publicly discuss the horizon for the expected reduction in interest rates. The president, Christine Lagardenoted that this drop could occur in the summer.

Markets continue to bet on a decisive decline in the price of money over the course of 2024, with the decline starting around the spring, despite the fact that Monetary authorities are trying, without much success at least for now, to lower expectationsindicating, on the one hand, that inflation, although lower, still cannot be considered controllable, and on the other hand, warning that geopolitical uncertainty remains high and, therefore, the situation may worsen.

The truth is that data on the evolution of inflation at the end of last year They turned out to be better than ECB experts and many analytical organizations expected. This suggests that such price improvement could contribute to the 2% target set as a target to be pursued and maintained for the economy to function without strain.

This improvement, which should be confirmed in the early months of this year and materialize when ECB technicians publish their new forecasts for eurozone GDP and inflation in March, is why investors will double down on their belief that rates will start to fall sooner or later, exerting downward pressure on money prices in financial markets, trying once again to anticipate the formal decisions of the authorities.

Extended Time

The response of those in charge of the ECB was to remember that decisions are made at every meeting and in accordance with the data available at any time, and to repeat, like a mantra, the belief that “maintaining current rates for a long period of time.” The goal of bringing inflation to 2% will be achieved. That is Rates won’t fall immediately, but they won’t rise either unless an unforeseen catastrophe occurs.

Naturally, some ECB members the most difficultwere not satisfied with this answer, which they also gave, like others, but went a little further, pointing out that they were still Now is not the time to even talk about when interest rates might start to fall.. Yes, it’s time to negotiate a slow rollback of the latest emergency debt-buying measures, but not a downward trend in interest rates.

And this is where Lagarde’s recent statements, made just a week before the council meeting, may be surprising, in which she indicates that it is possible that rates will begin to fall in the summer, if the numbers allow it, the inflation core continues its downward path, and the evolution of wages measured by agreements reached in collective agreements, which are mostly signed in the first quarter of the year, allows us to think that there will be no second round of impact on the progress of inflation.

These declarations impose several conditions, but in any case they open discussion about when rates will start to fall and, although we do not want to talk about it yet, to what extent they should do this so that, like inflation, they do not influence in any sense, and especially negatively, the evolution of the economy.

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