ECB to face scrutiny with new inflation forecasts amid bets on rate cut in March

Its US counterpart, the Federal Reserve, signalled that lower borrowing costs were coming in 2024

ECB chief economist Philip Lane. New inflation forecasts he helped to compile and which are unveiled on Thursday lunchtime are keenly anticipated by financial markets.

European Central Bank (ECB) president Christine Lagarde and chief economist Philip Lane will unveil new closely watched inflation forecasts at lunchtime on Thursday for the spluttering eurozone economy, but the central bank will likely push back against financial markets that are betting big for a first rate reduction as soon as three months from now.

Some ECB policymakers a few weeks ago were insisting rates could go higher again, but few financial market participants believe so, and hawks on its governing council have more recently conceded the “too high for too long” rhetoric was running out of steam, as the pace of eurozone inflation cools.

On Wednesday night, its US counterpart, the Federal Reserve, in a notable shift, signalled lower borrowing costs were coming in 2024 after taking explicit account of the fact that inflation “has eased over the past year”.

The Bank of England, which also meets on Thursday morning, is also facing market bets that it too will be forced to cut rates next year as British economic growth flirts with recession.

The ECB started out on its drive to hike rates aggressively from July 2022, and last increased rates at its September meeting. Eurozone inflation has since eased to 2.4% in November, which is dramatically down from a peak of 10.6% in October 2022, according to Eurostat figures.

Figures show eurozone industrial production contracted in October, suggesting the wider economy could be close to recession.

EY Ireland chief economist Loretta O’Sullivan said the ECB will likely keep rates unchanged later today, but that the path of inflation remains uncertain as “governments in Europe begin to phase out energy subsidies”.