(currently being written)
The ECB minutes relating to the last meeting of the Governing Council of the European Central Bank led by Christine Lagarde, on 14 December 2023, have been released.
The minutes come the day after the statements released by Lagarde who, speaking from Davos, where the World Economic Forum is taking place, issued a warning to the markets, inviting them not to run too fast with their bets on imminent rate cuts by the ECB. The effect in Europe was the about-face of stock and bond prices, with BTP yields starting to rise again.
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The number one of the Eurotower, however, confirmed that the direction is towards a reduction in the cost of money which could take place in the summer.
ECB minute on Lagarde’s last act of 2023
In his last act of 2023, the European Central Bank led by Christine Lagarde confirmed, as expected, the rates on main refinancing operations, marginal refinancing operations and deposits at the central bank, respectively at 4.50%, al 4.75% and al 4.00%.
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ECB rates and “betting” cuts: market expectations for 2024
ECB and rate cut: even economists are more cautious than the markets
According to what emerges from a survey launched by Reuters, expectations are for a first rate cut in June. This is the scenario believed by 45% of the analysts who were interviewed. All 85 experts interviewed said they believe that the rates on deposits at the ECB will be left unchanged at 4% at the next meeting of the Governing Council, expected next week, on Thursday 25 January. Overall, 59 economists are pointing to a rate cut during the second quarter of 2024, while only three expect a move at the March meeting.
More than 70% believe the first rate cut will be announced before July, compared to around 57% who made the same prediction in the December survey. The percentage of those who believe that the reduction will take place at the beginning of the summer has therefore grown. In the even further November survey, 55% had not expected any monetary easing until the second half of 2024. Economists’ median expectation is for overall rate cuts of 100 basis points by the end of 2024, which should therefore bring the deposit rate to 3%, thanks to the about-turn in the euro area inflation rate which, again according to those interviewed, will fall (referring to the headline CPI consumer price index) from 2.9% in December to 2% in the second half of this year, thus reaching the European Central Bank’s target.
Sixty percent of economists responding to a separate Reuters poll, 26 of 38, also said the risk of a sudden jump in inflation in the eurozone over the next six months was low. However, 12 economists spoke of a high risk of a new surge in prices. “The prospect of a new leap in inflation is conceivable only in the event of new supply shocks – which could arise with the disruptions that international trade is suffering due to Houthi attacks on merchant ships transiting the Red Sea – commented Kristian Toedtmann, senior economist at DekaBank. – “The highest risk is that inflation will once again become more stubborn than expected, especially due to pressure on wages.” Economists, in general, however, are more cautious than markets in their forecasts for rate cuts. In fact, the markets are aiming for more aggressive cuts, during 2024, equal to 150 basis points. The markets are also always betting on a first cut in April.
(currently being written)