Bank of America (BofA) has indicated that the European Central Bank (ECB) will make its first interest rate cut—currently frozen at 4.5% since its March meeting—in June and warned that the weakness of core inflation by the end of 2024 will lead to faster rate cuts in 2025.
The report, authored by Bank of America’s chief economist for Europe, Rubén Segura-Cayuela, highlighted the firm belief that inflation will not meet its target remains “unwavering”, making the idea of a cut in June “high”. Nonetheless, the institution is “concerned” that market prices up to June “remain very volatile”.
Regarding the ECB’s meeting yesterday, the institution noted there were no major surprises in the press conference, but a clear message was delivered: barring significant surprises, cuts could start in June.
Therefore, Bank of America has doubled down on its bet for quarterly cuts starting in June 2024, followed by faster reductions, bringing them down to 2% by mid-2025 due to a more rapid decline in core inflation than the market anticipates.
The ECB decided in its March 7 meeting to maintain interest rates, so the reference rate for its refinancing operations will continue at 4.50%, while the deposit rate will remain at 4% and the lending facility rate at 4.75%.
Thus, the central bank left rates unchanged for the fourth consecutive meeting since it hit the brakes at its October session after enacting ten consecutive interest rate hikes, which brought it to its highest level in over 20 years.
The “guardian of the euro” had raised rates by 450 basis points during the hiking cycle, which began in July 2022, although now markets are betting on the ECB lowering the reference rate in the summer.
In her appearance before the media after the entity’s conclave, the French President made it clear that while the ongoing disinflation process offers greater confidence to the members of the Governing Council, it is still not enough to make a turn in monetary policy, and more data will be needed, adding that in June the entity will have much more information.
Moreover, governors from a handful of central banks in the eurozone countries, and therefore members of the ECB’s Governing Council, led by the presidents of the Bundesbank and the Bank of France, supported this Friday the possibility of the first interest rate decrease arriving before summer, stating it will be a topic for discussion in either the April or more likely June meetings.
