ECB : once in June and three times a year

By Volker Schmidt, Senior Portfolio Manager at Ethenea

Our expectations for the next ECB meeting are clear: the interest rate will be cut by 25 basis points. At the last press conference, ECB President Lagarde made it clear that the Governing Council is preparing a rate cut in June. The market has already fully priced in this rate decision, so it won't come as a surprise to anyone.

In recent weeks, we have observed an upward trend in European economic data and inflation in line with ECB expectations. GDP growth in the first quarter of this year (0.3% QoQ) was stronger than the ECB's projections (0.1%). The latest purchasing managers' indices have confirmed that the recovery has gained some momentum, supported by rising real incomes. The Pan-European inflation rate was at 2.4% in April, in line with the ECB's expectations for the second quarter as a whole.

The primary focus of the meeting is likely to be on whether there will be any indication of the interest rate path following the June meeting. At present, there appears to be a general consensus among ECB members that growth prospects will remain relatively weak and that monetary policy is already sufficiently restrictive. Even the well-known hawk, president of the Bundesbank Joachim Nagel, recently stated that ‘wage developments are heading in the right direction and there are no signs of a wage-price spiral’. Therefore, the current intention to cut rates beyond June is likely to remain. We still expect three rate cuts this year - in June, September and December.

Media contact