When will the ECB cut key interest rates again?

The European Central Bank is unlikely to change its monetary policy again on Thursday. Bank economists mostly expect key interest rates to stabilize when the European Central Bank's council meets in Frankfurt to discuss monetary policy. This will be the fourth time in a row that the central bank sticks to its line.

The ECB has been quiet since September

By September, it had quickly and dramatically raised key interest rates to the current level due to a sharp rise in inflation, but has kept them quiet since then. The big question is when interest rates will fall. The deposit interest rate, which is important for monetary policy, is currently 4.0 percent. The key refinancing rate, which has been less important for a long time, rose by 0.5 percentage points.

Speculate on interest rate cuts

There has been speculation in financial markets for some time about interest rate cuts because the previously very high inflation rate is falling towards the European Central Bank's target of 2 percent. At the turn of the year, up to six cuts totaling 1.5 percentage points could still be considered possible. However, expectations have dropped significantly and currently point to around three to four cuts for 2024.

Certainty that inflation will fall permanently

The central bank's line is relatively clear: before easing tight monetary policy, the Board wants to ensure that the observed decline in inflation is permanent. Such statements have been made by several senior central bankers in recent weeks.

There are also central bankers like Italian Central Bank President Fabio Panetta who are considering early interest rate cuts in light of the weak economy. However, it is unlikely that this group will be able to assert its presence on the Council at the present time.

Question: When does the European Central Bank start working?

The question remains when the ECB can start cutting interest rates. The June meeting is currently viewed as a conceivable point in time in financial markets. Experts usually see it similarly: The experts at Moody's Analytics can envision the first interest rate hike in April or June. Asset manager Vanguard sees restrictions easing starting in June. Economists at DZ Bank also do not expect a shift in interest rates in the eurozone until the end of the year.

How powerful this is is controversial among experts. Projections range from three cuts totaling 0.75 percentage points to relief totaling 1.5 percentage points.

The European Central Bank's growth and inflation forecasts are also likely to receive greater attention on Thursday. Most bank economists assume that the central bank will lower its forecasts for both economic growth and inflation.

I was given the necessary leeway

This would indicate that economic developments favor lower interest rates and that lower inflation provides the necessary scope for this. However, an important aspect remains the development of wages, which this year will be determined primarily in the current collective bargaining rounds. European Central Bank President Christine Lagarde has recently pointed this out several times.