After the largest increase in interest rates in its history between 2022 and 2023, the European Central Bank is preparing to reverse the trend. During her press conference on Thursday March 7, Christine Lagarde, its president, clearly suggested that a first cut in interest rates was likely in June.
Of course, she wants to be cautious, emphasizing that everything will depend on the economic data published by then. But the trend is now going in the right direction. “We are in a process of disinflationspecifies Mme The guard. We were [en zone euro] at 2.9% inflation in December, 2.8% in January, 2.6% in February. There is clearly a decline and we are making good progress [vers un retour à l’objectif officiel de 2 %]. We are confident, but not yet confident enough. » The board of governors, meeting in Frankfurt this Thursday, therefore decided not to lower its interest rate immediately, which is currently at 4%, but officially opened discussions on the subject.
The question that interests the ECB the most is that of the evolution of wages. In 2023, these increased by around 5%, making up for a small part of the purchasing power lost in 2022. Mme Lagarde emphasizes that this development remains too high, because it tends to fuel inflation in services. This remained at 3.9% in February (over twelve months), and it has stagnated at this level since November 2023. Before lowering its interest rates, the monetary institution wants to ensure that the disinflationary trend also affects that sector.
“Everything points to a rate cut in June”
This will depend in particular on the outcome of the numerous salary negotiations which opened across Europe at the start of 2024, like every start of the year. But given that salary statistics are only available with a long delay, it will be necessary to wait several months to know the precise trend. “We will know a little more in April, and a lot more in June [les deux prochaines réunions de la BCE] »announces Mme The guard.
In the coded language of central bankers, this is an almost transparent indication. “Everything points to a rate cut in June”estimates Frederik Ducrozet, director of economic research at Pictet Wealth Management, a management company. “The ECB doves are preparing to take flight”adds Ann-Katrin Petersen of the BlackRock Investment Institute.
Another reason for a loosening of monetary policy is the stagnation into which the European economy has entered. The ECB further revised its growth forecast downwards, counting on 0.6% in 2024. In December 2023, it hoped for 0.8%, and in September, 1%. All indicators are at half mast, indicates Mme The guard : “Consumers continue to restrict their spending, investments have been reduced, and companies have exported less, reflecting a slowdown in external demand and losses in competitiveness. » Growth should be slightly better in the second part of the year and return to 1.5% in 2025, according to the ECB.
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