March 07, 2024 (MLN): Sticky inflation is expected to prompt eurozone rate-setters to hold borrowing costs steady again Thursday, as they await clearer signs of a sustained easing of consumer prices before beginning to cut.
Costs of everyday goods surged following Russia’s invasion of Ukraine and amid pandemic-related supply chain woes, prompting the European Central Bank to launch a historic rate hiking cycle.
Inflation, which peaked at over 10% in late 2022, has been steadily easing, hitting 2.6% in February, heading towards the ECB’s two-percent target.
At the same time the outlook is bleak, with the eurozone narrowly dodging a technical recession in the second half of 2023, weighed down by a poor performance in its biggest economy, Germany.
Slowing inflation and a worsening economy should bolster arguments for rate cuts. But consumer price rises are not slowing as quickly as hoped, and the ECB is worried about completing the “last mile” to reach its target.
The Frankfurt-based institution’s governing council is widely expected to hold the benchmark deposit rate steady at a record four percent for a fourth straight meeting on Thursday.
“We don’t think the ECB will be confident enough that the eurozone has gone far enough ‘along the disinflation process’… even to discuss rate cuts, let alone signal that one is imminent,” said HSBC in a note.
Still, the meeting will be closely watched for clues on when the ECB will start cutting borrowing costs, with most investors now betting on a first move in June.
Vital to their calculations will be the bank’s updated forecasts due to be released alongside the rate decision, with a slight downward revision expected for this year’s GDP growth as well as inflation.
