ECB kills hopes for early rate cut but puts focus on June meeting
Christine Lagarde, president of the European Central Bank, says the Governing Council is 'not sufficiently confident' about the course of inflation at this time.
President Christine Lagarde has all but killed off hopes that the European Central Bank would sanction a first interest rate cut as early as next month, insisting it will have a lot more information to hand at its June meeting to assess the course of eurozone inflation.
As widely expected, the ECB kept its deposit rate unchanged at 4% at Thursday's meeting, but will now face increased pressure from markets to reveal its hand after publishing new forecasts that show that the eurozone economic growth will be underwhelming this year.
Speaking in Frankfurt, Ms Lagarde told reporters that the ECB was making good progress in its campaign to tame price pressures, but was still "not sufficiently confident" to declare victory over inflation. Current trends for inflation were not "durable enough for the moment", but the Governing Council was in broad agreement that it would have much more economic information available at its June gathering, she said.
Economist Austin Hughes said an early rate cut in April "seems unlikely at this point", but the ECB nonetheless has signalled it will deliver its first cut in June.
Irish brokers warn that any ECB rate cuts won't come early enough this year to prevent 70,000 fixed-rate mortgaged households from facing significant increases in their monthly mortgage bills.
"For some of these borrowers, there will be a greater risk of mortgage arrears," said Ronan Brennan at Delta Capita.
Stephen Hamilton, managing director at MortgageLine, said it was likely the ECB would hold off until at least June, and then "hopefully" cut rates by up to 1.25% by the end of the year. "I do not want to burst anyone's bubble, but I do not see the Irish banks following with substantial rate cuts in 2024 no matter what the ECB does," Mr Hamilton said.
In a sign that markets anticipate some sort of rate cut in the coming months, but are still unsure of the timing, the yields or interest rates that eurozone government bonds must pay to tap international debt markets rose slightly as Ms Lagarde spoke to the media in Frankfurt.
However, the yield on the 10-year German bond traded lower on the day, to 2.29%. The yield on Ireland's 10-year bond also eased on the day, to 2.68%.
The ECB has in recent times sowed doubt among markets about the timing of its first rate cut. Its aggressive campaign has involved hiking rates from July 2022 as price pressures flared to levels that had not been seen in Europe since the 1970s.
Despite underlying inflation and other prices having fallen since its previous meeting, Ms Lagarde said that wages in economies across Europe were still growing too strongly even as early trends were encouraging.
The ECB projects headline eurozone inflation will average 2.3% this year, fall to 2% in 2025, but only settle below its 2% target in 2026. Eurozone inflation was running at 2.6% in February, according to Eurostat figures.
However, the ECB also predicts the eurozone economy will grow by an anemic 0.6% this year, "with economic activity expected to remain subdued in the near term". The economy will then grow 1.5% in 2025 and by 1.6% in 2026, according to the ECB forecasts.
Ms Lagarde said the eurozone economy "remains weak", but surveys point to a gradual recovery this year as real incomes "rebound". Demand for exports from the eurozone should pick up, while unemployment is at the lowest levels since the birth of the euro, she said.
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