ECB President Christine Lagarde managed not to spoil the markets’ party, nor to curb high expectations for interest rate cuts.
The first signal was that the European Central Bank (ECB) cut its inflation forecast to a point that it looks like it will meet its target in 2025. Moreover, it lowered its 2024 inflation estimate to 2.7% from 3.2% previously. It also cut its forecast to 5.4% for the current year.
“We have not discussed anything about interest rate cuts,” Lagarde said. This statement should have caused a financial earthquake in the market, but this did not happen. “The market is determined to pressure the central bank to speed up interest rate cuts in 2024. Many analysts are betting that the ECB will proceed with the first cut in March, followed by five more cuts in the rest of the year,” EU officials said to “Naftemporiki”.
Information leaked from the meeting
According to some leaks from the meeting, certain officials expressed concern over the fact that the markets are discounting the start of the interest rate cuts earlier. However, all parties involved have reportedly agreed that it is too early to cut rates in March.
Most members of the Board of Directors even ruled out “any move before June 2024”, the same sources noted. “There are several important reasons for the Governing Council to rule out a rate cut based on market forecasts, and in any case the ECB will wait to see the March macroeconomic figures before taking any decision that may prove to be hasty,” they added.
The “stubborn” facts
Lagarde also insisted that the ECB’s stance “depends on figures and not on time.”
“In the first six months of the next year, the ECB will have a huge amount of figures published that will help it to assess the situation more calmly. “Therefore, it makes sense that the ECB will keep a wait-and-see stance until economic figures cannot be doubted. In this sense, the ECB president gave some indications about the moment when the Central Bank could really consider the possibility of starting to cut interest rates,” the same sources emphasized.
“Domestic” inflation
Lagarde insists on stressing the risk still posed by “domestic” inflation that shows no sign of abating. Lagarde’s words were clear: “We should absolutely not lower our guard. Domestic inflation is falling very slowly.”
Market officials pointed out to “Naftemporiki” that “the ECB, as well as the Fed, have a difficult task to calm the market. Fights between markets and central banks always tend to end badly, with losses for investors. But Lagarde managed to keep the party going with similar steps as Federal Reserve Chair Jerome Powell. She gave the impression of going against market expectations, without actually doing so.”
