ECB will cut in June and 'won't wait for the Fed to cut interest rates first'

ECB president Christine Lagarde may even state its intention to cut rates in June at its meeting next Thursday, economist says

Christine Lagarde, president of the European Central Bank, which meets next Thursday.

It is no secret most European Central Bank policymakers think they will be in a position to start cutting interest rates in June, and will not wait for its counterpart in the US, a leading economics consultancy has said. 

Jack Allen-Reynolds, deputy chief eurozone economist at Capital Economics, said ECB president Christine Lagarde may even state its intention to cut rates in June at its meeting next Thursday, even if the US Federal Reserve holds back from cutting interest rates in the early summer for its own reasons.

"Based on the wording used by policymakers recently, next week President Lagarde might give some conditional guidance such as: If the incoming data confirm that the ECB’s March forecasts are valid, then the governing council expects to cut its key interest rates in June,” Mr Allen-Reynolds said in an analysis.  

"They are just waiting to confirm that the data on wages, profits and productivity are consistent with their baseline forecast, which shows headline and core inflation falling to 2% next year," he said, paving the way for a probable ECB rate cut of a quarter point in June. 

The ECB started aggressively raising rates in July 2022 — a few months after the the US Federal Reserve — and some analysts have said in the past it will not start cutting the deposit rate from the current 4% rate until after the Fed has announced its first US rate cut. 

However, Mr Allen-Reynolds said the ECB will not be held back because its US counterpart faces a much stronger US economy and will be anxious not to refuel inflation pressures there. 

"While investors no longer seem convinced that the Fed will cut interest rates in June, we don’t think that will stop the ECB," he said. 

"The two central banks are responding to different domestic economic conditions," he said.