MNI ECB WATCH: ECB On Hold, As Focus On Cuts Timing

The European Central Bank is expected to hold key interest rates at 4.00% this Thursday, and issue projections showing lower-than-previously-expected inflation in 2024 but with little change for 2025 and 2026.

The ECB could also modify its policy statement to suggest that rate cuts are getting closer. As MNI has reported, a minority of Governing Council members are pushing to discuss the timing of cuts. (See MNI SOURCES: ECB Cut Expectations Range From 50-100BP In 2024)

Market pricing now implies less than a 20% chance of a cut in April, down from 70% in recent weeks, with most of the Council still wanting to see more proof of disinflation from wages data. (See MNI INTERVIEW: ECB Inflation Sceptics Hold Upper Hand-Scicluna)

Wages growth slowed to 4.46% in the fourth quarter of last year from 4.69% in Q3, with ECB President Christine Lagarde calling the numbers “obviously encouraging.” But some members point to continuing upwards wage pressure in the services sector.

DOWNWARD INFLATION TREND

Inflation has remained in its downward trend, with February’s flash headline figure falling to 2.6% from 2.8% in January, but the decline has been slower than consensus expectations. Friday’s flash data also showed core inflation rising to 3.1%, above expectations for 2.9%.

Hawkish Executive Board member Isabel Schnabel said recently that the eurozone economy could have bottomed out and could start to slowly pick up momentum in coming months.

Lagarde may also be asked about the influence of Federal Reserve policy on the rate path, after National Bank of Austria Governor Robert Holzmann said that the ECB could wait for the Fed to start cutting before following suit, while others have taken the standard line emphasising how eurozone monetary policy is not dependent on the action of other central banks.

Another possible topic for the press conference will be the ECB’s Operational Framework review, which seems likely to conclude by recommending a modified version of the existing rates arrangement. (See MNI SOURCES: New ECB Framework To Maintain Continuity)