ETHENEA commentary ahead of ECB rate decision: When is "long enough" over?

Volker Schmidt, Senior Portfolio Manager at ETHENEA, does not expect any change in interest rates at the meeting of the European Central Bank (ECB) on 7 March. However, he does expect indications as to when the first cut in interest rates could come:

"The upcoming ECB meeting will not bring a decision on an interest rate change. However, the new growth and inflation forecasts should give an indication of when 'long enough' is finally over and the ECB could start cutting rates.

At the press conference in October, Christine Lagarde said that the ECB has reached a level of interest rates that, if maintained for long enough, should lead to the achievement of the medium-term inflation target of two per cent. When asked what 'long enough' meant, Lagarde replied that no change was expected in the coming quarters.

Last December, the ECB forecasted an average annual headline inflation rate of 2.7% for 2024, 2.1% for 2025 and 1.9% for 2026. At the moment, it looks like inflation is falling faster than the European Central Bank expected: The latest figure for January 2024 was 2.8% and the consensus expectation for February 2024 is already 2.5%. A confirmation of this trend, or even a modest downward revision to expectations, should further bolster the ECB's confidence that it will be able to achieve its target. However, the ECB insists on the condition that key rates must remain at current levels "long enough" for its forecast to materialise. Based on this stance, we at ETHENEA believe that the first rate cut by the ECB could come at the earliest in June. Therefore, our answer to the original question is: "We will have to wait at least another quarter before we see any rate cuts".

Volker Schmidt
Volker Schmidt

Media contact

Wim Heirbaut

Senior PR Consultant, Befirm

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ETHENEA offers a wide range of attractive investment opportunities for different investor profiles: risk-minimised, balanced and equity-focused.

Capital preservation and the achievement of stable long-term returns are key components of the investment philosophy of the Ethna Funds. The fund management consistently realises this objective through active management and flexible asset allocation across various sectors and asset classes.

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Further information and legal information can be found at ethenea.com.

 

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