Economists are united in their assessments that the European Central Bank’s campaign of interest-rate increases reached its peak with Thursday’s 10th consecutive move.
(Bloomberg) — Economists are united in their assessments that the European Central Bank’s campaign of interest-rate increases reached its peak with Thursday’s 10th consecutive move.
Some — including those at Commerzbank — expect borrowing costs to stay at 4% through 2024. Others — such as UBS and Citi — predict cuts starting as early as June.
The views by ECB watchers come after President Christine Lagarde said Thursday that the ECB’s latest hike doesn’t necessarily mean rates have reached their peak, and that cuts are “not even a word that we have pronounced.”
First Cut in June
UBS
“As before, we expect the ECB to keep rates at current levels until June 2024, and then start cutting rates by (only) 25 basis points per quarter. Despite sluggish growth, this pace of cuts would be relatively slow and monetary conditions would stay restrictive (i.e. policy rate above 2%) through 2024/2025. Yet, we think a conservative ECB stance amid weak GDP growth would be warranted as we would expect European labor markets to remain relatively tight (for structural reasons), thus keeping wage growth above historical averages and slowing down disinflation.”
Citi
“Today’s ECB rate hike by 25 basis points to 4% was probably the last. Governors may express residual hawkishness via a faster balance sheet rundown soon. We are more pessimistic on growth than the ECB, but we also think inflation should remain sticky. We bring forward our call for the first rate cut to June 2024.”
Nordea
“We do not see any further hikes ahead from the ECB, and continue to think that rate cuts are still long away. We currently estimate the ECB will start cutting rates in June 2024, when it has gathered sufficient evidence that inflation is converging towards the target on a sustainable basis.”
BNP Paribas
“The ECB’s decision to deliver one more hike, despite downside risks to growth, shows its determination to get the job done on inflation. However, the message was that this is very likely to be the last hike of this cycle. While the door was left slightly ajar for further hikes, we doubt it will be justified by the evolution of data over the coming months.”
“Policy is likely to remain restrictive for a prolonged period, though, even if today’s extra hike means cuts are likely to come somewhat earlier than our prior forecast. We expect the first cut to come in June 2024 and the DFR to end next year at 3.25%.”
TD Securities
“The messaging today couldn’t have been more clear-cut. Barring any major, broad upside surprises to inflation and its underlying measures, the Governing Council is unlikely to hike rates again this cycle. Certainly by October’s meeting, the ECB will have little data to push it off current messaging.”
First Cut 2H 2024
UniCredit
“The ECB raised its policy rates by 25 basis points and signaled that the tightening cycle has likely come to an end.”
“We think that the ECB will hold rates at their current levels for about nine months, with the first rate cut expected in mid-2024. We see risks to this scenario as broadly balanced.”
Rabobank
“The ECB suggested that this was probably the last hike in the cycle, but retained the option to resume hikes if needed.”
“We expect them to sit on their hands until the second half of 2024.”
Jefferies
“Our read is that the ECB is done with its rate hikes, but we do not expect cuts anytime soon. We believe rate cuts will be a second half of 2024 story.”
Deutsche Bank
“It will probably be some time before the ECB will describe it as such, but 4% is likely to be the terminal rate, in our view. There is a mild hawkish bias in the new policy stance. President Lagarde apparently did not want to say that rates have peaked. She was more definitive that rate cuts are not part of the conversation. But she did say that the focus going forward would be more on the duration of restrictive rates than on the level of rates.”
“We continue to see no cuts before September 2024.”
First Cut 4Q 2024
Goldman Sachs
“The latest data point to a stagnating economy, but inflation remains too high for comfort. This supports the case for unchanged rates over the coming year — bar a material growth downturn that would also speed up disinflation.”
“Given the ECB staff’s (and our) forecast for a pickup of growth in 2024 as headwinds lift, we maintain our forecast for the first cut in 2024 Q4.”
On Hold Through 2024
Berenberg
“From now on, the focus of the ECB debate will shift to the length of the likely rate plateau. Unlike the US Fed, which we expect to start cutting rates in spring 2024, the ECB will probably stay largely put next year, in our view.”
Commerzbank
“Despite today’s rate hike, we still believe it is unlikely that the ECB will cut rates in 2024, as many still expect. Underlying inflationary pressures, which are driven by cyclical and structural factors, are likely to remain too high for that.”
RBC
“We expect the ECB to remain on hold at current levels for the duration of our forecast horizon at end-2024.”
“We expect the ECB to remain on hold for the duration of our forecast horizon (end-2024.”
Yet to Commit
ING
“The ECB would be crazy to completely rule out further rate hikes. Inflation has simply taken too many unexpected turns and the ECB has been wrong too often in the past. This is why today’s meeting still leaves the possibility of picking up hiking at a future stage. However, such a scenario is highly unlikely. A further weakening of the economy and more traction in a disinflationary trend will make it very hard to find arguments for additional rate hikes any time soon.”
J. Safra Sarasin
“A long period of constant rates and a continuation of the current stagflation is the most likely path forward until at least spring 2024. Market discussions will be on the timing of the first rate cut from now on.”
ABN Amro
“We continue to expect macro outcomes (both growth and inflation) to come in below ECB expectations and as such we do view this as the peak in policy rates. In addition, we expect the central bank to pivot towards rate cuts next year.”
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