ECB, breakthrough on cutting mortgage rates: what will happen in June 2024

Both in the days before and after the March meeting of the European Central Bank, which led to yet another confirmation of interest rates, numerous experts analyzed the situation and predicted a reduction of 25 basis points from June 2024, after receiving the data on wages.

In particular, according to the Bank of America expert, the slowdown in inflation at the end of 2024 could translate into more decisive cuts in the cost of money in 2025.

ECB rates still stable: the reasons

As expected, after the March meeting the ECB decided to keep interest rates unchanged. The rate on main refinancing therefore remains unchanged at 4.50%, that on deposits at 4%, and that on marginal loans at 4.75%.

There are many reasons that led to this decision. On the one hand, inflation at 2.6% has reached a relatively satisfactory level which, however, does not reach the target of 2%. On the other hand, a series of other important indicators to keep in mind such as employment levels, economic growth and wages.

The trend in core inflation obviously had a specific weight in the assessments (i.e. inflation net of trends in food and energy prices and on which EU monetary policy can have the greatest impact) with greater difficulty in the slowdown in inflation on services which reached 3.9% in February 2024, after a long period of stagnation at 4%.

When is the first cut? Word to the experts

Suspended between the danger of recession and that of a risky cut without having consolidated the various macroeconomic data of the Eurozone – and with the unknown of how much the crisis in the Red Sea could affect – the ECB has opted for a prudent wait-and-see line, waiting of consolidated data for the first quarter.

So when will we be able to see the first cut in interest rates long awaited by those who have a variable rate mortgage or intend to request financing for the purchase of a property? According to many economists, a first cut of 25 basis points should take place in June 2024.

The Bank of America report

In particular, according to the report signed by the chief European economist of the Bank of America, Rubén Segura-Cayuela, the European Central Bank could opt for more decisive cuts in the cost of money in 2025, after the first cut in June 2024, with the slowdown of the inflation forecast for the end of the year.

The BofA expert forecast cuts of 75 basis points for 2024 and an additional 125 basis points in 2025. He also mentioned the possibility of “an acceleration of the cutting cycle earlier than we now expect,” which could lead to cuts of up to to 100 basis points for 2024, with ECB deposit rates expected to reach 2% by mid-2025.

Buckey and Szczepaniak’s prediction

George Buckley, chief UK and euro area economist at Nomura, and Andrzej Szczepaniak, senior European economist at Nomura, predict a 50% chance of a 25 basis point reduction at the June meeting.

But at the same time, they note an almost equal probability between maintaining and decreasing rates by 50 basis points, depending on the incoming data.

“As soon as the ECB is convinced that the spring wage negotiations will be absorbed into corporate profits rather than leading to a resurgence of inflation, the Governing Council will choose to cut rates,” the two economists said, forecasting a total of 125 basis points in terms of rates with cuts from June to December 2024.

Franck Dixmier, global fixed income CIO at Allianz Global Investors, points out that core inflation is still stubbornly high. “Services inflation is the key factor to watch in the coming months,” Dixmier said. Given the uncertainty surrounding wages, Dixmier noted, “we believe the ECB could make its first rate cut in June once it has more information on wage developments at the beginning of the year.”

Read also: How central banks affect interest rates: a comprehensive guide

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