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First rate cut approaching: ECB interest rate meeting in March

First rate cut approaching: ECB interest rate meeting in March

MMost people are not yet expecting a rate move: However, it may be interesting when the European Central Bank Council, the euro zone's top monetary policy body, meets on Thursday for its March interest rate meeting. The inflation rate in the euro area has decreased significantly, recently reaching 2.6 percent. If developments continue in this manner, the European Central Bank's 2% target no longer seems far away. However, inflation remains strong, especially in services, and core inflation, i.e. inflation excluding energy and food, which central bankers like to view as an indicator of longer-term developments, also remains high.

Deutsche Bank expects to hold the session

Therefore, ECB President Christine Lagarde's words on Thursday will be examined very carefully to see if they reveal anything about the date of the first interest rate cut. “The ECB will continue its difficult path between Scylla and Charybdis for the time being,” Robin Winkler, Deutsche Bank’s new chief German economist, told FAZ. On the one hand, the high level of interest rates threatens to bring about growth in Europe. The Eurozone is at a complete standstill. It is clear that weak industrial production is already affecting lower energy prices. On the other hand, core inflation remains above 3%, Winkler said: “This is primarily due to continued high wage growth in the euro area – a topic that ECB President Lagarde is likely to emphasize again at the press conference.” .

Michael Holstein, chief economist at DZ Bank, said he did not expect a clear signal from the ECB towards a rate cut on Thursday: “But the ECB will not take summer off the table as the start of the interest rate cutting cycle.” ECB President Lagarde is likely to emphasize “data-drivenness” in the rest of the session.

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New inflation expectations are likely to be a sticking point. The ECB last updated its forecasts in December, and since then inflation has been somewhat weaker than expected. “In December, the ECB forecast inflation rates of 2.8 and 2.9 percent for the fourth quarter of 2023 and the first quarter of 2024,” said Carsten Junius, economist at JSafra Sarasin Bank. “The result for the fourth quarter of 2023 is 2.74 percent, and for the first quarter of 2024 it is likely to be around 2.65 percent.”