Euro Area: ECB stands pat for the fourth straight meeting in March

Euro Area Monetary Policy March 2024

Euro Area: ECB stands pat for the fourth straight meeting in March

At its 7 March meeting, the European Central Bank (ECB) kept the main refinancing operations, marginal lending facility and deposit facility rates unchanged at 4.50%, 4.75% and 4.00%, respectively. The ECB, thus, stuck to the script that had been largely expected by market analysts after having delivered 10 consecutive hikes between July 2022 and September 2023—a cumulative increase of 450 basis points. The Bank also restated that it plans to start normalizing its balance sheet by reducing the pandemic emergency purchase programme (PEPP) by EUR 7.5 billion per month on average during the second half of 2024 and discontinuing reinvestments under the PEPP at end-2024.

The decision to stand pat, putting off the start of the monetary policy easing cycle, was motivated by still-high domestic price pressures despite the ongoing downtrend in inflation. February saw harmonized inflation fall to 2.6% from January’s 2.8% due to the fading impact of past supply shocks and tight monetary policy. The Bank expects inflation to decline further in the coming months and projects that it will average 2.3% in 2024, 2.0% in 2025 and 1.9% in 2026. On the growth front, the ECB revised its 2024 GDP growth forecast downwards to 0.6%, while it sees expansions of 1.5% in 2025 and 1.6% in 2026.

The Bank reiterated that interest rates had reached levels that, if maintained for sufficiently long, would contribute to the timely return of inflation to the 2.0% target and reaffirmed that it was “ready to adjust all of its instruments within its mandate” to reach the target. In the meeting’s accompanying press conference, President Lagarde reaffirmed that the ECB’s board would “continue to follow a data-dependent approach”. The majority of our panelists expect the ECB to start easing monetary conditions in Q2 2024.

The next meeting is scheduled for 11 April.

Commenting on the ECB’s decision, ING’s Carsten Brzeski stated:

“ECB President Christine Lagarde slightly opened the door to rate cuts at the June meeting. However, with inflation gradually coming down but not undershooting the target and growth returning to potential later this year, the central bank’s macro outlook doesn’t offer a lot of room for a longer series of rate cuts.”

Meanwhile, UOB’s Lee Sue Ann commented:

“All in all, we believe that rate cuts should only be on the agenda, at the earliest, in the 6 June meeting. Our call for now is for the first rate cut at the 18 July meeting, following our expectations for the Fed to move in Jun. Beyond that, we are penciling in a total of four 25 basis points cuts for the ECB by end-2024.”

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