The latter should indicate a decline in overall inflation, particularly in 2024, given the fall in gas prices (to the lowest since 2021). However, we do not expect any significant change in core inflation (which excludes energy and food) over the forecast horizon, due to tight jobs and growth markets. sustained wages. Core inflation is likely to remain above the ECB’s 2% target until 2026. In this context, we believe the Board will not want to cut interest rates too quickly, even if the The question of when to start is debated.
Our main expectations:
– The European Central Bank (ECB) will maintain its key interest rates at 4.0% for the deposit rate, 4.5% for the Refi rate and 4.75% for the marginal lending facility.
– ECB President Christine Lagarde will reaffirm that although the latest inflation data is encouraging, ECB officials must be more confident about the lasting nature of the disinflation process. Therefore, she will reaffirm that it is still too early to reduce interest rates.
– The ECB President will indicate that the timing of the ECB’s first interest rate cut will depend on data, and in particular data on wage growth.
– Compared to the December 2023 projections, we forecast that GDP growth in euros for 2024 will be revised downwards slightly, from 0.8% to 0.7%, and will remain broadly unchanged for the next two years, at around 1.5% per year. Regarding inflation, we expect the headline HICP (Harmonized Consumer Price Index) to be projected lower this year, by 0.3 percentage points (pp) to 2.4% and will be quite similar to forecasts. of December for 2025 and 2026, respectively at 2.0% (-0.10 pp down compared to December) and 1.9% (unchanged). At the same time, core inflation will decline over the projection period, from 2.6% in 2024 (-0.10 pp compared to December 2023 projections) to 2.2% in 2025 (-0. 10 pp compared to December 2023 projections), then will converge towards the 2% objective with 2.1% in 2026 (unchanged).
In summary, the ECB should try to buy time regarding its future decisions on interest rate cuts.
During the press conference, Christine Lagarde will likely keep a moderate tone and reaffirm the ECB’s firm commitment to bringing inflation back towards its 2% target. The economy is more resilient and inflation is falling more slowly than was initially forecast a few weeks ago. Therefore, a change in monetary policy stance is less urgent. The ECB still has time and can wait until June. We do not anticipate any notable movements in the financial markets following the ECB meeting.