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ECB likely to cut rates in June: Economists' forecast

ECB likely to cut rates in June, financial news

A significant number of economists, as indicated by a Reuters survey, predict that the European Central Bank (ECB) is likely to lower interest rates in June. This belief is held by nearly two-thirds of the respondents, reflecting a strong consensus in the financial community.

However, there's some disagreement among these experts about whether this anticipated rate cut might happen sooner or later than currently expected.

The situation with inflation in Europe shows a promising trend towards stabilization. The ECB, which aims to maintain inflation around the 2.0% mark, observed a decrease in the inflation rate to 2.8% in January, down from a peak of 10.6% in October 2022.

This downward trend in inflation is expected to continue. However, ECB policymakers, including key figures like President Christine Lagarde, are cautious about reducing interest rates too soon.

They emphasize the need for more comprehensive economic data, especially in areas like the labor market, before making any decisions on rate cuts, despite the economy showing signs of slowing down.

The Governing Council of the ECB, including influential members such as President Christine Lagarde, shares a common stance on the need for more robust and detailed economic data before deciding to lower the deposit rate from its current level of 4.00%.

This rate is historically high for the ECB. The Council is particularly interested in obtaining more information on labor market trends, which they consider crucial for making informed decisions about interest rates.

President Lagarde of the ECB has pointed out the importance of wage negotiation data from the first quarter, which is expected to be released in May, as a significant factor in the ECB's decision-making process. This focus on upcoming wage data underlines June as the most likely time for the ECB to contemplate an initial reduction in interest rates. This expectation for a June rate cut aligns with the forecasts of both the broader financial markets and the majority of economists.

The consensus among economists about the timing of the ECB's rate cut has become more pronounced. In a survey of 73 forecasters, 46, which constitutes almost two-thirds of the respondents, believe that the ECB will decrease the deposit rate by 25 basis points, bringing it down to 3.75% in June. This consensus has grown since a previous poll in January, where only about 45% shared this view.

Carsten Brzeski, the global head of macro at ING, provided insights into why June is viewed as the likely month for the ECB to initiate a rate cut.

He noted that by June, actual inflation rates are expected to have reduced further, creating a more favorable economic environment for a rate cut. Additionally, the data on wage growth for the first quarter should be available by then, which is anticipated to show either a steady state or no significant increase in wage acceleration as we read in Reuters. This combination of factors leads to the conclusion that June presents an appropriate moment for the ECB to begin reducing interest rates.



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