/STIR: ABN AMRO Weigh In On The ECB & Current Market Pricing

ABN AMRO write “Yet they judge that data is moving in the right direction and rate cuts are likely to come in the summer. The idea being that the easing of financial conditions driven by pricing of too early rate cuts could slow disinflation.”

• “Our base scenario is that the ECB will cut interest rates by 25bp in June. Although the comments of ECB officials reduced rate cut pricing, markets continued to price in a significant probability of a rate cut at the April Governing Council meeting.”
• “At the time of writing, 20bp was priced, though that is down from 40bp at the start of this year. Given this, we think that some further correction is likely as the bar in terms of data (much weaker activity and inflation) to trigger an April rate cut is very high.”
• “Looking further out, we think that once the rate cut cycle starts, it is likely to be more extensive than markets currently price, with the deposit rate eventually being reduced to 1.5%.”