ECB holds rates but signals first cut could come soon

by | Apr 11, 2024

So now we have it, the ECB’s latest interest rate decision has been announced, and it’s another ‘hold’.

Richard Carter, head of fixed interest research at Quilter Cheviot has shared his reaction to the news as follows:

“The European Central Bank has predictably opted to hold rates once more. While for the first time it has signalled a clear intention to begin cutting rates if inflation continues to head in the right direction, which could potentially come as soon as June, it stopped short of pre-committing to this.

“Inflation appears to be better behaved and less sticky in the Eurozone than it has been elsewhere, particularly when compared to the US where just yesterday we saw another unwanted uptick which took headline inflation to 3.5%. Given the Federal Reserve is now expected to resist making any cuts for some time yet, and the Bank of England faces a difficult balancing act, the ECB could well be the first to make a move.

“Nonetheless, the ECB has maintained its data dependent approach and should something change between now and its next interest rate decision then we could see it row back on this more positive outlook. It will be keeping a close eye on key data between now and its 6 June meeting, particularly the crucial wage data which has been running well above the 3% target the ECB has stated would be conducive with its inflation target.

“The ECB was criticised for being a rate hike laggard when the central banks first began their respective hiking cycles, but time will tell whether it will be the first to switch stance and start bringing rates back down.”

Helen Viera, Head of Banks at Flagstone International has also shared her comments on the ECB’s decision to hold interest rates: 

“The decision to hold rates is not unsurprising as the long battle against persistent inflation is still not entirely won. However, economic pressure is slowly building on the European Central Bank (ECB) to start loosening its monetary policy.  

“The rate has sat at 4% since September 2023 and while this has helped to constrict the pace of inflation the worry now is that it has also started to choke off economic activity in the Eurozone. 

“There are signs that key indicators are starting to flash red on the ECB’s economic dashboard. Therefore the received wisdom is that reductions will need to start coming by the summer to forestall stagnation in the economy. Those rate reductions look imminent and when they do arrive it is likely we will see month on month reductions in quick succession as we head toward a new normal. 

“The latest European inflation data sits at 2.8% and so there is still inflation beating value to be found for cash depositors. However, the trajectory for interest rates is likely to be downward across much of the world’s developed economies over the remainder of 2024. Therefore those looking internationally for value for their cash deposits may need to work smarter to secure the best possible returns.”  

Related articles

Ninety One | Macroscope: Time to buy gilts?

Ninety One | Macroscope: Time to buy gilts?

Strategist for Ninety One, Russell Silberston argues that with inflation about to hit target, the Bank of England soon to embark on an easing cycle and the economy cruising at stall speed, it’s about time that the so-called ‘Moron Premium’ was consigned to the history...

Trending stories

Join our mailing list

Subscribe to our mailing list to receive regular updates!

x