Author: Indradeep Ghosh
BENGALURU (Reuters) – The European Central Bank will cut its deposit rate twice this year, in September and December, an overwhelming majority of economists polled by Reuters said, saying risks tilted toward a smaller-than-expected cut.
The outlook remains largely unchanged from surveys conducted ahead of the European Central Bank’s widely-rumored quarter-point interest rate cut on June 6.
Improving business activity, strong wage data and still-firm price pressures have added to uncertainty about the case for further rate cuts.
Philip Lane, chief economist of the European Central Bank, told Reuters in an interview on Monday that there was no “urgency” to lower interest rates if the economy continued to expand.
Still, a nearly 80% majority (64 of 81) in a June 12-18 Reuters poll expected the ECB to cut interest rates twice more this year, in September and December, bringing the deposit rate to down to 3.25%.
That’s up from nearly two-thirds in May and only about half in the April survey. While 11 people expected just one more cut this year, 6 expected three more cuts.
ECB President Christine Lagarde reiterated at her June press conference that while the ECB had done everything short of formally announcing a June rate cut in advance, the bank would “continue” to rely on economic data to guide policy decisions. .
“Strictly speaking, the ECB’s approach is not data-dependent, as only incoming data matters… We continue to expect the ECB to deliver strong results in September and December,” said Greg Fozzi, euro zone economist at JPMorgan Chase & Co. further interest rate cuts.
“Given that GDP growth is picking up, there is room to wait for more data to clarify key aspects of the forecast. It is unclear whether the same argument will be used again to justify another rate cut in September, namely that rates will still remain unchanged even after a second Reductions are also subject to restrictions.
Until recently, financial markets were expecting another rate cut this year, and just in the past few days, financial markets have begun pricing in two cuts, partly due to French President Emmanuel Macron’s decision to call snap parliamentary elections later this year, causing French bond markets to There is unrest.
Inflation rose to 2.6% last month from 2.4% in April and will not hit the ECB’s 2% target until the second quarter of 2025, according to the poll median, and is slower than the ECB’s latest forecast of at least 2026 Inflation rate above 2%) should be more optimistic.
In addition, the Fed’s smaller interest rate cuts (currently expected to cut interest rates up to two times this year, or even just one) may cause the euro to fall by nearly 3% against the US dollar this year, further weakening. This could lead to unnecessary imported inflation.
Nearly 90% of economists (36 out of 41) said the risk of fewer rate cuts by the ECB this year is greater.
“We have two rate cuts (this year), but it may only turn out to be one… If the Fed has a good reason not to cut rates, then maybe that will also have an impact on the ECB’s policy space,” said Rabobank’s head of macro strategy. Elwin de Groot said.
At the same time, the euro zone economy, which grew 0.3% last quarter, will grow by an average of 0.7% this year and 1.4% next year, basically the same as the last survey.
(Additional Reuters Global Economic Poll reporting:)
