Jason Davis, Global Rates Portfolio Manager at J.P. Morgan Asset Management, discusses the potential decisions which the ECB could make over the next few months.
“The ECB are currently in a holding pattern, awaiting further information on inflation before commencing their soft landing. We expect the ECB to reduce their inflation forecasts given the better than expected progress towards target.
“That said, the biggest revisions will be to headline inflation with slightly smaller changes at the core level. Taking a step back, we think there has been considerable progress in inflation with core inflation now sitting at just above 3% and shorter term measures of inflation even lower.
“The ECB remain cautious with wages and services inflation remaining relatively sticky and survey measures of growth starting to pick up. Whilst it is unlikely that the ECB will close the door on cutting rates at any particular meeting, we expect strong indications that cuts are unlikely before June.
“Our base case remains that the ECB start cutting in June, with 3-4 rate cuts in total this year as inflation moves back towards target and we expect growth to rebound but remain below trend.”
