ECB rate cuts expected to start in June

5 Nisan 2024

Market analysis on behalf of Michael Brown Senior Research Strategist
at Pepperstone.

The April ECB meeting is likely to bring little by way of surprises, though should see the
Governing Council take a further dovish step, as inflation continues to slide back towards the
2% target, and the likely start of the easing cycle in June looms large on the horizon. With
policymakers having, effectively, already pre-committed to a cut at the next meeting, market
participants are already beginning to mull what comes next; chiefly, the degree of policy
normalisation that is delivered over the remainder of 2024.
For what will likely be the final time this cycle, the Governing Council are likely to leave all of
the ECB’s key interest rates unchanged, therefore maintaining the deposit rate at a record
high 4.00%, the level at which it has been since last September. EUR OIS, unsurprisingly,
prices almost no chance of a rate cut this month, while fully pricing the first 25bp cut for
June.
In many ways, had the ECB not boxed themselves into a corner by effectively pre-
committing to a June cut, there would be a strong case to be made that the first cut of the
cycle should be made at the April meeting. However, with President Lagarde, and the
majority of other GC members having repeated, ad nauseum, the line that policymakers will
know “a little more” by April, and “a lot more” by June, a rate cut before the latter meeting
seems highly unlikely.
In a similar vein, market participants will again pay close attention to the guidance that
policymakers issue, accompanying the likely decision to keep rates on hold. For some time
now, the GC have indicated that policy will need to remain ‘sufficiently restrictive for
sufficiently long’, in order to bring inflation back to target. Furthermore, Lagarde has noted,
as recently as March, that she is “confident”, but not “sufficiently confident” that inflation is on
its way back to 2%.
While the former line is unlikely to change, any shifts in the latter stance will be significant,
particularly if Lagarde makes mention of “almost” having sufficient confidence in inflation
returning to target, as this would be a clear indication that policymakers are laying the
groundwork for the first cut to be delivered at the subsequent meeting in June.