There ECB will cut certainly the rates a Junea timescale on which the expectations of the markets and the preferences of the majority of the members of the Board converge, even if some favor a early cut (April). In any case, inflation is decreasing and the data released today will be able to support this expectation.
Inflation close to target
FromEurostat updated data will arrive todayMarch inflation, increasingly in line with the 2% target. In February inflation grew by 2.6% and a substantially unchanged figure is expected for March, according to the positive data coming from Italy (.3%), France (2.4%) and Germany (2.3%) .
But there is it possibility of a downside surprise, which would force bankers to review the pace of interest rate adjustments, in terms of timing and extent. But nothing will be decided before knowing the data relating to wage negotiations, which represent the main element of pressure on prices. And indeed, the progress of the spring bargaining round will only be known in June, which is why expectations for the first rate cut converge on that date.
Moderate inflation expectations
The investigation that the ECB leads among consumers to capture inflation expectations revealed that families' expectations about future prices continue to moderate. Inflation expectations at 1- and 3-year horizons remained well below the inflation rate perceived in the past: Expectations for the next 12 months decreased to 3.1% from 3.3% and are now at the lowest level since the start of the war in Ukraine, while 3-year expectations remained unchanged at 2.5%.
The preferences of the Board and analysts
Although someone anticipates the possibility of a rate cut in April (the meeting is scheduled for April 11th), or most bankers confirm the greater probability of a cut in June9, precisely to await the outcome of the spring salary negotiations. This is what he expressed himself this morning Robert Holzmanngovernor of the Austrian central bank, according to which April “It's not on the radar”, while “in June we will have more information”.
Even the governor of the Bank of Italy, Fabio Panetta prudently observed that “the conditions are being created to initiate monetary easing”, while the governor of the Banque de France Francois Villeroy de Galhau appeared more optimistic, anticipating the possibility of a cut in April even if – he admitted – the one in June remains more likely.
“Overall, we see the ECB on track to start cutting rates by June. It is unlikely that any news on inflation around Easter or tax increases in some countries will change the situation”, underlines Martin Wolburg Senior Economist of Generali Investments, after noting that “inflation in the euro area is further easing due to ongoing disinflation” and “growth in negotiated wages, a key ECB metric, has fallen from last year's peak and is set to moderate further.”
The euro is depreciating
In the meantime, the euro is depreciating against the dollar, in consideration of a more unscrupulous ECB than the Fed, which instead could wait even after the summer. The European currency trades this morning at 1.0765 dollars, at a six-week low, confirming the downward trend that began before Easter.
