Lindsay James, investment strategist at Quilter Investors, comments on the news that the European Central Bank has left interest rates unchanged: As had been expected the European Central Bank has once again held interest rates, while also cutting inflation projections and growth forecasts. |
“Inflation is now projected to average 2.3% in 2024, down from 2.7%, with energy, which is a volatile factor, a key driver of this. Growth expectations were reduced to 0.6% in 2024, down from 0.8%, while 2025 growth expectations were unchanged at 1.5%. “Christine Lagarde has previously linked any decision to cut rates with signals on wage inflation, which according to the ECB’s wage tracker is currently running at around 4.5% - still well above the 3% target the ECB has stated would be conducive with its inflation target. The ECB will therefore be keenly watching how Q1 wage negotiations play out given how decisive they will be in bringing wage inflation, and thus CPI, down. “With this in mind, the ECB has matched the Federal Reserve’s resolve to maintain a data dependent approach, continuing to emphasise a message of patience despite recent comments from Christine Lagarde that rate cuts ahead of the summer months may be likely. “The ECB will still be reluctant to move too quickly, however, and we can therefore expect it will hold off on making any cuts until at least the 6 June meeting to allow for further crucial wage data to be considered. This would provide the ECB with more time to see how much of an impact, if at all, ongoing wage increases have on inflation, and we may see it make a more decisive shift in messaging at its next meeting in April.” |
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