Discussions will begin regarding the reduction in interest rates

The latter should suggest a decline in overall inflation, especially in 2024, given the decline in gas prices (the lowest since 2021). However, given the tight jobs and growth markets, we do not expect any significant change in core inflation (which excludes energy and food) over the forecast horizon. Constant wages. Core inflation is likely to remain above the ECB’s 2% target until 2026. In this context, we believe that the Board will not want to cut interest rates too quickly, even if the question of when to start is under discussion.

Our main expectations:

– The European Central Bank (ECB) will maintain its key interest rates at 4.0% for the deposit rate, 4.5% for the refi rate and 4.75% for the marginal lending facility.

– ECB President Christine Lagarde will reaffirm that while recent inflation data is encouraging, ECB officials should be more confident about the permanent nature of the disinflation process. Therefore, she will reaffirm that it is still too early to cut interest rates.

– The ECB president suggests that the timing of the ECB’s first interest rate cut will depend on data, and particularly data on wage growth.

– Compared to the December 2023 projections, we forecast that GDP growth in euros will be slightly revised downwards to 0.8% to 0.7% for 2024, and will remain broadly unchanged at around 1.5% per year for the next two years. In terms of inflation, we expect the headline HICP (Harmonized Consumer Price Index) to be lower by 0.3 percentage points (pp) to 2.4% this year and to be quite similar to the forecast of 2.0% for December 2025 and 2026 respectively. (down -0.10 pp compared to December) and 1.9% (unchanged). At the same time, core inflation will decline over the projection period, from 2.6% in 2024 (-0.10 pp compared to December 2023 forecasts) to 2.2% in 2025 (-0.10 pp compared to December 2023 forecasts), then converge to 2.1% in 2026 with 2%. Towards the objective (unchanged).

In summary, the ECB should try to buy time on its future decisions on interest rate cuts.

During the press conference, Christine Lagarde will likely keep a moderate tone and reaffirm the ECB’s firm commitment to bringing inflation back to its 2% target. The economy is more resilient and inflation is falling more slowly than initially forecast a few weeks ago. Therefore, a change in monetary policy stance is less urgent. The ECB still has time and can wait until June. We do not expect any significant movement in financial markets after the ECB meeting.