After raising interest rates the most in its history between 2022 and 2023, the European Central Bank is preparing to reverse the trend. During her press conference on Thursday 7 March, its president Christine Lagarde clearly indicated that interest rates are likely to be cut first in June.
Of course, he wants to be cautious, stressing that everything will depend on the economic data released by then. But the trend is now going in the right direction. “We are in the process of disinflationM clarifiesme the guard We were (in the euro zone) Inflation 2.9% in December, 2.8% in January, 2.6% in February. There has clearly been a reduction and we are making good progress (Towards official target return of 2%). We have faith, but not enough faith yet. » The Board of Governors, meeting in Frankfurt this Thursday, decided not to immediately cut its interest rate, currently at 4%, but to officially open discussions on the subject.
The question of greatest interest to the ECB is the evolution of wages. In 2023, this has increased by about 5%, making up a small fraction of the purchasing power lost in 2022.me Lagarde has emphasized that this development is too high, as it boosts inflation in services. This stood at 3.9% (over twelve months) in February, and has been stable at this level since November 2023. Before lowering its interest rates, a financial institution wants to ensure that the disinflationary trend affects that sector as well.
“Everything Points to a Rate Cut in June”
This will depend in particular on the outcome of the numerous salary negotiations that began across Europe in early 2024, as at every start of the year. But given that the salary figures are available only with a long delay, one has to wait for several months to know the exact trend. “We’ll know a little more in April and a lot more in June (next two ECB meetings) »declaresme guard.
In the coded language of central bankers, this is an almost transparent signal. “Everything Points to a Rate Cut in June”Frederic Ducrozet, director of economic research at management company Pictet Wealth Management, estimates. “ECB doves preparing to take flight”Adds Anne-Katrin Peterson of BlackRock Investment Institute.
Another reason for the easing of monetary policy is the stagnation that has occurred in the European economy. The ECB further revised its growth forecast to 0.6% in 2024. In December 2023, it expected 0.8% and in September, 1%. All indicators are at half mast, indicating Mme guard: “Consumers have continued to restrict their spending, investment has fallen and companies have exported less, reflecting a slowdown in external demand and a loss in competitiveness. » Growth should pick up slightly in the second half of the year and return to 1.5% in 2025, according to the ECB.
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