June 20, 2024

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The European Central Bank is holding interest rates, giving a strong signal that cuts are on the way

The European Central Bank is holding interest rates, giving a strong signal that cuts are on the way

The European Central Bank did not directly refer to easing monetary policy in its previous statements.

The central bank of the 20 countries that use the euro raised its key interest rate to a record 4% in September. This rate has been left unchanged in every pool since then.

Policymakers and economists have focused on June as the month in which interest rate cuts could begin, after the European Central Bank lowered its medium-term inflation forecasts. Since then, price increases in the euro zone have slowed more than expected in March.

June will also be the first month that policymakers will get a full set of data on first-quarter wage negotiations — an area of ​​concern about potential inflationary effects.

The European Central Bank said on Thursday that the information received “broadly confirmed” its medium-term outlook, with inflation falling due to declines in food and goods.

Market prices point to a 25 basis point cut in June, according to LSEG data.

“For some time now, the ECB has essentially committed to a June cut. There is a high barrier to not implementing this. But there is a wide range of possible outcomes in subsequent months, depending on further progress in the fight against inflation. “So far the data is moving dovish,” HSBC Asset Management said in a note.

In the United States, expectations of a summer interest rate cut were significantly dampened by higher-than-expected inflation data released this week.

In comments reported by Reuters, Deputy Governor of the Riksbank Per Jansson said on Thursday that if the US Federal Reserve ruled out interest rate cuts in 2024, this could pose a “problem” for both the Riksbank and the European Central Bank.

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In the case of the Riksbank, this will be due to the weak Swedish krona fueling inflation, Jansson. He said In a letter.

“The ECB is currently building confidence in its view that European inflation is on track to return to its 2% target,” Andrew Benito, chief European economist at Isler Capital, told CNBC's Silvia Amaro ahead of the announcement.

Benito added that European data is on track to achieve that, keeping the ECB on track for a June cut — but the pace and extent of additional cuts this year “may be more sensitive to US data and Fed policy.”