The European Central Bank (ECB) is widely expected to announce an interest rate cut this week. Here are the key points:
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High Certainty: All 82 economists polled by Reuters predict that the ECB will reduce its deposit rate by 25 basis points to 3.75% on June 61. This consensus makes a rate cut practically a done deal.
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Further Reductions: A majority of economists also expect two more rate cuts in September and December1. The ECB’s Governing Council is likely to move sooner than the U.S. Federal Reserve, which usually leads the way in monetary policy decisions.
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Inflation and Wage Growth: Despite encouraging signs on inflation, recent wage growth has raised questions about how fast the ECB can lower rates. The central bank has hinted at a June cut, but debate over its room for further cuts remains heated1.
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Market Expectations: Financial markets currently price in only two ECB rate cuts in total for 2024, a significant pullback from the six expected at the start of the year. This situation is uncommon, as economic forecasters expect more rate reductions than traders1.
In summary, the ECB is likely to cut rates this week, with additional reductions expected later in the year. Keep an eye on the official announcement for the final decision
