The governing council of the European Central Bank (ECB) meets this Thursday for the first time in 2024, as it does every six weeks. economic evolution Making decisions about the euro area Money Politics. Members of the institution’s executive committee, comprising six members and 20 governors of the monetary union’s national central banks, signaled: there will be no big changes. However, the market is very cautious about the messages the institution and its president may send. Christine Lagardeabout when the expected start of the cycle is rate drop reference interest.
What is required for you to decide on rates?
It would be a big surprise if he changed them. The ECB has insisted that since it last raised interest rates last September, interest rates have “reached the following levels”: well-groomed for a while long enoughIt will significantly contribute to his rapid recovery. inflation to the target (2% in the medium term)”. Thus, the price of money will remain the same third meeting in a rowAfter the monetary authority raised rates at a pace and scale unprecedented since its establishment in 1999 to combat high inflation: 4.5 percentage points in 10 meetings consecutively between July 2022 and last September. The main type will remain 4.5% (the highest level since May 2001), the deposit facility (interest paid on money stored in banks, the most relevant interest in the current context) will remain at its historical maximum in 2001. 4%.
When might rates start falling?
This is a big question. European Central Bank President Christine Lagarde set the deadline (summer) for possible debts for the first time last week. first landing Rising interest rates in the euro area following the inflation crisis of the last two years. So later than expected. sunday (spring). And also with nuances: this is not a commitment, just “possible”The path of inflation decline will depend on the absence of negative surprises due to factors such as wages, business margins, energy prices and global supply chains.
When does the market expect these to drop?
Before Lagarde spoke last week, investor consensus I was waiting for the ECB to start cutting interest rates April and i downloaded them five times with 1.4 points throughout the year until it is reduced to 2 percent in 2025. But the central bank has been warning in recent weeks that the predictions it made in December that inflation would fall to its 2 percent target next year were implicit. three cuts this year 0.75 points. Despite Lagarde’s remarks last week, some analysts still think she will start reducing the price of the currency in April, but a growing number now think she will do so. In June.
What could delay the rate cut?
Interest rate reduction depends on: inflation The decline continues in the Eurozone. ECB wants to make sure of this wage increase that he is not threatening himself (he will have more data between April and June on salary renegotiation) and job benefits has the capacity to absorb this increase. In addition, cost is also important energy And global supply chains Do not cause price tensions again as a result of differences. geopolitical conflicts flow. A third factor is market expectation He said that the Central Bank will start reducing interest rates in the spring. “It doesn’t help “If expectations are too high compared to what is likely to happen, we will undermine our fight against inflation,” Lagarde warned. The criticism implicit in this comment is that market rates – e.g. euribor– It is falling due to the expectation that the monetary authority will begin to reduce the official price of money in the spring. softens conditions It makes it harder to finance the Eurozone and, with it, harder to fight inflation in the eyes of the ECB.
What could make the interest rate cut stand out?
What is important in this respect is the development of the economy. The euro zone’s GDP fell 0.1% in the third quarter of last year compared to the previous three months, and ECB vice president Luis de Guindos has already announced that leading indicators show activity contracted in the fourth quarter as well. recession. Central Bank in March Will review his predictions Regarding the economy and GDP: If there is a significant deterioration compared to December, the interest rate cut may be brought forward, or at least this is the market’s expectation. “Given the growing concern about avoiding recession, we believe central banks may look to weak economic growth or recession, no matter how shallow, as a solution.” Interest rate cut signal“Especially because monetary policy appears to be achieving its goal of sustainably reducing inflation to 2 percent,” said Marco Giordano, director of fixed income investments at Wellington Management.
What will be the impact on mortgages and deposits?
The expectation that the ECB would start reducing official interest rates caused Euribor to fall from 4.16% in October to 3.679% in December. This caused: quotas mortgages Rates on variable rates, which are reviewed every six months, have already started to fall, and if this trend continues, those doing annual reviews will also do so in the coming months. The average rate for new mortgages contracted in December also fell to 3.79% from 3.86% last month. Average interest new depositIn parallel, it continues to rise slowly (from 2.44% to 2.57%) as banks later start to increase their fees. If the central bank lowers interest rates, these trends will continue, but the process will worsen. more or less fast It depends on when the central bank will start reducing the price of money and at what pace it will do so.