Everything as expected. The ECB left interest rates unchanged. It is the fourth pause in the cycle of ten consecutive increases that began in July 2022. And therefore: The rate on main refinancing remained unchanged at 4,50%, that on deposits at 4%, and that on marginal loans at 4,75%. For the long-awaited cut we will have to wait until June, when in all likelihood there will be sufficient data to think about a reduction in the restrictive orientation. Meanwhile, the Eurotower has revised its estimates for growth and inflation in the euro area downwards.
The ECB's new estimates on inflation and growth
The Central Bank has cut its inflation estimate for the euro area compared to its December forecasts. According to new estimates, inflation will reach 2,3% in 2024 (from 2,7% previously), 2% in 2025 (from 2,1%) and 1,9% in 202 “Although most inflation indicators have slowed further, domestic inflationary pressures remain, especially the salary growthi”, said President Lagarde in the usual press conference at the end of the Eurotower monetary policy meeting, adding that: “We are in the middle of the disinflation process, we are making good progress and we are more confident but we are not yet confident enough” of inflation returning to target.
Le growth forecast for 2024 instead they fell from 0,8% in December to 0,6%. Economic activity is expected to remain moderate in the short term, and then grow by 1,5% in 2025 and 1,6% in 2026, supported initially by consumption and, later, also by investments. On this front, Lagarde underlined, "the risks of geopolitical tensions remain". “Economic activity remains weak, consumers continue not to spend, investments remain moderate and companies export less, but surveys indicate a gradual recovery thanks to falling inflation and wages that continue to rise,” continued the number one of the ECB.
When will the rate cut?
Regarding the long-awaited rate cut, in the statement, the ECB Governing Council said it was "determined to ensure the timely return of inflation to the 2% objective in the medium term". Based on its current assessment, the Eurotower board “believes that the ECB's key interest rates are at levels which, if maintained for a sufficiently long period, will provide a substantial contribution to the achievement of this objective. Future decisions of the Governing Council will ensure that key rates are set at sufficiently restrictive levels for as long as necessary.”
“Clearly we need more data which will arrive in the coming months, we will know more in April and much more in June“Lagarde said at a press conference, adding that today's decision on rates was unanimous. The Eurotower number one reiterated that “The ECB will act independently (from the Fed, ed.), we will do what we have to do, when we have to do it. If the conditions are met and our diagnosis is that monetary policy has been restrictive long enough, we will make our decision.”
In this context, Sylvain Broyer, Chief Economist Emea of S&P Global Ratings points out that: “Since the ECB has been in charge of defining interest rates for the Eurozone, it has lowered them 21 times, and never when core inflation was above 2,2%. Today core inflation is at 3,1% and will not fall below 2,2% before the summer. Unless an unforeseen event occurs that affects growth or financial stability, an ECB rate cut in June is therefore the most likely scenario."
The ECB pushes on the Capital Market Union: “It is imperative to move faster”
The Governing Council of the ECB has “unanimously agreed on a new position on the European Capital Markets Union, which states the imperative to move faster” in the direction of a unification of European financial markets, said the president of the European Central Bank, recalling that the ECB had taken a position in 2020, on the occasion of the European Commission's action plan, but has now decided to "significantly strengthen" your position.
The reaction of the Stock Exchanges
The decisions of the ECB and the words of President Christine Lagarde push the European stock markets with the Stoxx 600, the index that collects the main market capitalizations, which gains 1% and the main lists seem to have found the right mood again: Madrid 0,9% salt, Paris (+ 0,6%), Frankfurt (+0,5%). More backward Milano (+0,2%), ballasted by Telecom (-9,9%), Azimut (-3,7%), Pirelli (-2,8%) and Nexi (-2,4%).
As for government bonds, it spread between BTP and Bund continues at 130 points, with the rate of Italian decennial which falls by seven basis points to 3,57% and the German one to 2,57% (-5 points). On the currency front, theeuro it is stable at 1,0886 to the dollar.
