ECB expected to move towards four interest rate cuts this year, Goldman Sachs outlook

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The North American bank considers that a cut in June is the most likely.

The European Central Bank (ECB) kept its reference interest rates unchanged for the fifth consecutive meeting, but markets are expecting a change of scenario from the summer onwards.

Analyzing the meeting, Goldman Sachs maintains its forecast of three consecutive cuts of 25 basis points in June, July and September. Then, you will have to wait until December. In 2025, the GS expects three cuts in March, June and September, until the terminal rate reaches 2.25%.

The GS considers that a cut in June is the most likely, but that its forecast is below what the market discounts: “communication [do BCE] supports our view that a cut in June is very likely. The pace of cuts after June, however, remains uncertain.”

“We continue to see good reasons for consecutive initial cuts, including clear restrictive policy, weak demand and weak wage growth,” according to the analysts.

Christine Lagarde did not reject a rate cut at the June meeting, if several indicators are as desired by the Governing Council of the European Central Bank (ECB).

On Thursday, at the usual press conference, the central banker once again repeated the phrase released in the initial statement on the monetary decision: if the inflation outlook, underlying inflation dynamics and the strength of monetary policy transmission “increase further confidence that inflation is converging towards the target in an orderly manner, it would be appropriate to reduce the current level of monetary restrictions”.

“It’s a clear assessment. It is an important phrase because it describes the mechanics that best clarify the process. In June, we know that we will have much more data and information and we will have a new projection. We are dependent on data and we will look at all this information to determine whether all this confirms our hope that inflation will return to the target in a sustained manner”, said Christine Lagarde yesterday.

The European Central Bank (ECB) has again postponed the interest rate cut. Reference interest rates thus remained at the same levels: rate on main refinancing operations (4.5%), liquidity provision rate (4.75%) and deposit rate (4%)

In the decision statement, the ECB highlights that inflation “continued to fall, fueled by lower prices for food and goods. Measures of underlying inflation are easing, wage growth is gradually moderating, and companies are absorbing some of the increase in labor costs in their wages.”

However, “financing conditions remain restrictive and previous rate increases continue to weigh on demand, which helps with downward pressure on inflation. But pressures on domestic prices are strong and are keeping services inflation high.”

The Governing Council guarantees “it is determined to ensure that inflation returns to its 2% target in an orderly manner. Considers that reference rates are at levels that will make a substantial contribution to the ongoing disinflation process. Future Council decisions will ensure that rates remain sufficiently restrictive for as long as necessary.”

If the inflation outlook, underlying inflation dynamics and the strength of monetary policy transmission “further increase confidence that inflation is converging towards the target in an orderly manner, it would be appropriate to reduce the current level of monetary tightening. In any case, the Board will continue to follow a data-dependent and encounter-by-encounter approach to ensure the appropriate level and duration of restriction, and will not be making any pre-compression for a particular rate path.” .