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MarketScape · 03.11.24

ECB Sees Inflation Progress, but June Rate Cut Most Likely

The European Central Bank has revised down its inflation forecasts, but it’s not ready to cut rates just yet. We explain why a mid-year cut looks most likely.

  • Markets & Economy
  • Cash Insights
  • Central Banks
  • ECB

Key Points

What it is

We analyze the European Central Bank’s decision last week to leave its policy rate unchanged, and what investors can expect.

Why it matters

As inflation has softened, investors are expecting central banks to start cutting interest rates this year.

Where it's going

The ECB said it needs more economic data to feel confident about cutting rates. We expect they will wait unit at least June.

The  kept key interest rates unchanged last week as widely expected. New staff economic projections included downward revisions to both near-term growth and inflation. But ECB President Christine Lagarde emphasized the importance of waiting for further evidence on the inflation path, further indicating the first rate cut to June at earliest.  Let’s take a look.


On the surface, the ECB’s policy statement was broadly unchanged from January, reiterating key messages.  The statement acknowledged current policy rates are “making a substantial contribution” to lowering inflation and will continue to be set “at sufficiently restrictive levels for as long as necessary” in order to ensure inflation meets their 2% target. Updated ECB projections showed a downward revision in headline inflation across their forecasting period, now reaching their target in 2025, before falling below 2% in 2026. Core inflation, which excludes the impact of more volatile food and energy prices, was also revised lower but only reaching 2% by the end of 2026. The lower inflation forecast mainly reflects an expected decline in energy prices. The ECB remains especially concerned about inflationary pressures from wages.


The key message we took from the accompanying press conference was one of progress. Lagarde noted progress toward their inflation target has been “good”, making the Council members increasingly “more confident”. But they are not “not sufficiently confident” to begin cutting interest rates. She highlighted progress had been made in domestic inflation, but disinflation was lagging other components.  Finally, we see early signs that wage growth has started to moderate. Largarde stressed that although progress is being made, the ECB continues to be data dependent. They will “know a little more in April, but a lot more in June”.


Looking ahead, wage data for the fourth quarter of 2023 will soon be available. Also, depending on the outcome of monthly negotiated wages and other news on key wage settlements, some Council members may become comfortable enough to support a rate cut in April. That said, we continue to see a first rate cut as most likely in , when the Council will have a more complete assessment of the first-quarter wage data. The pace and magnitude of rate cuts past the initial cut will continue to be data dependent, with the ECB likely to proceed carefully so as not to allow inflationary pressures to re-emerge.

Main Point

Close but Not Yet

The European Central Bank acknowledges good progress on inflation’s decline toward its 2% target. However, they said they are not sufficiently confident to begin cutting interest rates, as they seek more evidence. We expect the bank to have enough information make its first rate cut in June.

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