On Thursday the ECB is preparing to cut the rates of a quarter point, bringing them from 2.75% to 2.50%, but the expectation of a break grows on its next steps.
«We expect the ECB to reduce the 25 -basic storage rate in the meeting next week – he comments Bas Van GeffenSenior Macro Strategist by Rabobank – and our basic scenario remains that of a further cut in April, even if we see the risks that the next move is postponed to June “. More generally, the ‘hawks’ of northern Europe believe that, at 2.50%, the monetary policy of the Frankfurt Institute can take a pause for reflection, while the ‘doves’ of southern Europe insist on the need to continue cutting. Among the hawks the German should be counted Isabel Schnabel, which has already rejected the need for further rates cuts.
More generally on Thursday it will be necessary to keep an eye on if the ECB will abandon the “restrictive” label from its official position on rates. If it will do it, a break in the rates cycle could become an option. Otherwise, the current rhythm of the cuts of the rates will continue.
According to Bloomberg’s experts, the press release relating to monetary policy decisions will probably no longer declare that “monetary policy will remain restrictive”. It is likely that this sentence be replaced with something more “vague”, or it could be completely eliminated. In any case, Bloomberg’s experts remain of the idea that the Board of Directors should decide three cuts of a quarter point this year, bringing the rate on deposits to 2%. Regarding the macroeconomic forecasts, Eng’s experts expect that the ECB keeps its inflation forecasts on Thursday but lowers its GDP growth projections for this year. In December, the staff of the Central Institute had provided GDP growth at 1.1% for 2025, 1.4% for 2026 and 1.3% for 2027, with an inflation at 2.1% in 2025 and 1.9% in 2026. The “disinflation process will continue within this horizon”, Ing’s experts explain, while on GDP for 2025 they provide that it drops “from 1.1% to 1.2% for 2026 and 1.3% for 2027”.
More generally, according to Ing, the ECB will almost certainly avoid providing future indications due to the high level of uncertainty. “Macro indicators – report the analysts of the Dutch institute – can quickly become obsolete in this frenetic and irregular political context. For example, U.S. duties on European goods or a peace agreement in Ukraine could have a significant impact on the Economy of the Eurozone in both directions, for better or for worse. The best approach of the ECB is therefore to proceed on sight. In the end, we believe that the structural weakness of the Eurozone economy, together with the imminent imposition of duties and the lower inflationary pressure due to the flexion of the labor market, will force the ECB to lower rates at least 2%, even if not all members of the ECB could like it “.