The European Central Bank (ECB) is carefully considering the possibility of an interest rate cut in 2024 in response to declining inflation and the stagnant European economy. According to UBS estimates, the early closure of the pandemic plan Pepp could result in an increase of around 80 billion euros in Eurozone government bonds on the market in the coming year.
Markets in Turmoil: Bets on Interest Rate Cuts
Traders have escalated bets on an ECB interest rate cut in 2024, with forecasts of a 150 basis point reduction, bringing interest rates down from the current 4% to 2.5%. Bloomberg reports that the market has already priced in six 25 basis point cuts over the next year, supported by a report from Deutsche Bank economists anticipating a reduction as early as April, rather than June as initially expected.
Decline in Inflation and Rethinking Interest Rate Policy
With energy prices falling and overall inflation plummeting rapidly, the ECB is reconsidering its interest rate policy. Isabel Schnabel, from the ECB’s executive board, quoted Keynes, stating that “when the facts change, I change my mind.” The discussion now revolves around the coherence of interest rates between 4% and 4.75% with inflation at 2.4%.
Market Bets and Future Outlook
The market is betting on the anticipation of an interest rate cut by the ECB, given the descent of inflation and a shift in the attitude of central bank members themselves. According to Bloomberg, expectations now point to a first cut as early as March next year, overturning previous assumptions of June or April.
ECB’s Next Move and Economic Impacts
The ECB, after suspending the interest rate hike at the end of October, is now at the center of expectations for a possible cut in 2024. Analysts predict a decrease in interest rates, currently at 4%, during the upcoming meeting on December 14, 2023.
Economic Impacts of Interest Rate Cut
An interest rate cut has significant impacts on the European economy. The rise in interest rates has a negative effect on consumers, making mortgages and loans more expensive. Additionally, businesses, facing higher costs, may pass these cost increases on to consumers, influencing the cost of living.
ECB and Inflation: Interest Rate Cut in 2024?
With inflation dropping to 2.4% in November, the ECB is seriously considering an interest rate cut as a tool to support economic growth. However, experts are divided on the timing. While some predict a cut in the second quarter of 2024, others warn it might be too early, considering geopolitical uncertainties and potential fluctuations in inflation.
In conclusion, the ECB faces a crucial decision, with market attention focused on the upcoming meeting on December 14, where Christine Lagarde will update forecasts on inflation and growth, influencing expectations of rate cuts.