Still mum on when to cut
At its last meeting on 25 January, the European Central Bank provided no clear hints on the timing of future policy shifts. The Governing Council decided to keep the three key ECB interest rates unchanged, specifying that it is determined to ensure that inflation returns to its 2% medium-term target and that it will continue to follow a data-dependent approach to determining the appropriate level and duration of the monetary restriction. This announcement is in line with our expectations and we continue to expect the first 25bp cut in June and a total of 125bp of cuts in 2024.
“A sharp deterioration of the economy would prompt an early cut. But this is neither the ECB’s nor our baseline scenario. We thus continue to expect the first 25bp rate cut in June and a total of 125bp of cuts in 2024.”
Dr Dirk Schumacher
Head of Europe Macro Research
It seems so still premature for the Western central banks to talk about rate cuts. The BoC hinted only that its tightening cycle might have picked, shifting its focus to when to cut rather than whether to hike. Next week, the Fed’s and BoE’s policy meetings will be closely watched in search for any clues on the timing and the magnitude of rate cuts. The Fed may still need to see more data, whereas in England all MPC members will possibly refrain from voting for a rate hike and one member could back a cut.
In Asia, in contrast, the BoJ kept its ultra-easy policy and the People’s Bank of China cut bank reserve requirements to inject liquidity to the economy.
Read our full opinion and the impact on the various cross-asset, forex, primary market and commodities markets in the latest Market Weekly News report by Natixis CIB Research.