ECB to provide further clarity on interest rate cuts next week

Some economists predict the regulator will embark on a steady roadmap of interest rate cuts begging in June and running through to the end of next year. Photographer: Hannelore Foerster/Bloomberg via Getty Images

The European Central Bank (ECB) is expected to give a clearer indication on when it will start cutting interest rates at a monetary policy meeting in Frankfurt next week.

Some economists predict the regulator will embark on a steady roadmap of interest rate cuts beginning in June and running through to the end of next year.

Respondents to a survey conducted by Bloomberg said they anticipate a first quarter-point reduction in the deposit rate, currently at a record 4%, at the policy meeting following the Governing Council’s upcoming session on April 11. Similar moves will ensue once a quarter, taking the rate to 2.25% by late 2025.

Officials seem to have all but agreed that June is the month to start dialling back policy restriction. The subsequent pace of easing is less clear, with president Christine Lagarde insisting it’ll be strictly guided by economic performance — and others already busy plotting their preferred course.

“Since the beginning of rate cuts in the near future seems to be almost decided, attention will now shift to what determines the speed of monetary easing,” said Kristian Toedtmann, a Dekabank economist. “Council members do not seem to have a common understanding of data dependence.” 

However, eurozone inflation cooled more than expected in March, declining further towards the ECB’s target of 2%. Annual consumer prices slowed to 2.4% last month, down from 2.6% in February.

Policymakers could remain cautious though as some analysts have warned that tight labour markets in different parts of the bloc could fuel rising wages and contribute to higher prices.

Markets are currently pricing around 90 basis points of easing this year, compared to about 70 basis points for the Federal Reserve. That gap has reignited a debate that’s as old as the ECB itself — whether Europe can chart its own policy course or will ultimately be forced to follow the US.

The Federal Reserve are expected to implement an interest rate cut by June as well, according to a US economist at Morgan Stanley. Only a quarter of respondents say they’re convinced that Fed decisions won’t impact the ECB’s rate path at all, compared to 36% saying they shouldn’t.

Meanwhile, Central Bank card payment statistics showed Irish consumers bought more for less in February. The total value of card payments amounted to €7.51bn, a decrease of 3.7% from €7.8bn in January.

In the same period, the volume of card payments increased slightly by 0.86%, from 197.1 million in January to 198.8 million. The decline in value of card payments was driven by the decrease in online payments both domestically and non-domestically, with domestic online payments declining by 7.4%.

- Reporting by Bloomberg and the Irish Examiner