Expectations for a rate cut from the ECB are rising

The European Central Bank’s (ECB) interest rate path estimates and accompanying messages have begun to come to the fore. Investors, who predicted last week that interest rates would remain above 3 percent, now predict that interest rates will fall to 2.5 percent by the end of 2024. If the markets are right, the ECB will be the first central bank among major central banks to cut interest rates next year. With inflation rapidly declining, investors have begun pricing in interest rates from the European Central Bank (ECB) as soon as March. Investors, who predicted last week that borrowing costs would remain above 3 percent, predict that interest rates will fall to 2.5 percent by the end of 2024. If the markets are right, the ECB will be the first central bank among major central banks to cut interest rates next year. On the other hand, a group of analysts believe that inflation could rise too much if ECB President Lagarde and her colleagues cut interest rates too early, or that too much contraction could put the economy in trouble. Allianz Senior Investment Strategist Bjoern Griesbach said in his assessment on the subject that projections will be very important and that inflation is still a big question mark for many ECB officials. “One thing is very clear, the ECB needs to lower interest rates,” Griesbach said, but noted that the central bank will not underestimate inflation for a second time as it did at the beginning of the pandemic. The ECB had previously predicted that inflation would fall to 2 percent in the second half of 2025. The ECB had previously predicted that inflation would average 3.2 percent next year and return to its 2 percent target in the second half of 2025. This outlook appears to be increasingly out of date after the increase in consumer prices slowed to 2.4 percent in November, the lowest level since mid-2021. ECB Executive Board Member Isabel Schnabel, known for her hawkish rhetoric, said in her assessment of the latest inflation figures that the rate was “remarkable” and that further interest rate hikes were unlikely.