The ECB prepares the ground for a rate cut in June

The European Central Bank (ECB) maintained its interest rates at their historic high this Thursday, while preparing the ground for a first cut in June in the face of falling inflation and a sluggish economy. The rate on deposits, which is the benchmark, was left at its record level of 4%, reached last September. If the “updated assessment” of the inflation outlook and the transmission of monetary policy to the economy were to “further strengthen its confidence” in the “sustainable convergence of inflation towards the objective” of 2%, the ECB would then consider it “appropriate to reduce the current restrictive nature of monetary policy”, indicates the press release on monetary policy decisions.

“The rise in wages is gradually flattening and companies are absorbing part of the increase in labor costs through their profits,” already notes the institution. Financing conditions remain “restrictive” and past increases in interest rates “continue to weigh on demand, which contributes to the moderation of inflation”

“But price pressures of internal origin are strong and keep the rise in prices of services at a high level,” she warns. In other words, barring an upward surprise on inflation during the spring, conditions will be ripe for a rate cut at the next meeting in June.

The Frankfurt institution still lacks economic data to decide on a shift in monetary policy. This would come after an unprecedented phase of raising interest rates to calm inflation. Price increases continued to slow down in the euro zone, to 2.4% in March year-on-year, or 0.2 points less than in February. It is getting closer to the 2% medium-term objective after this stronger-than-expected decline.

During this Thursday's press conference from 12:45 p.m. GMT, ECB President Christine Lagarde will be asked about the possibility for the ECB to begin its cycle of rate cuts before its big American sister, the Federal Reserve (Fed ). In contrast to what is happening in the euro zone, inflation in the United States in March accelerated to 3.5% year-on-year, according to the CPI index published on Wednesday, exceeding forecasts.

Also read: What is the ECB waiting for to lower rates?

A first rate cut by the Fed is now only expected by a majority of analysts at the meeting scheduled for mid-September, just over a month and a half before the American presidential elections. But the ECB, which meets in June a week before the Fed, “will not take the risk of waiting for the rate cut,” is convinced Gilles Moec, chief economist at AXA.

The two central banks are facing different situations: the insolent health of the American economy accompanied by higher inflation contrasts with the persistent weakness of activity in the euro zone, where high rates push down prices and end up suffocating the economy. demand from businesses and households. The prospect of a rate cut in June will “look like a compromise” between ECB central bankers described as “doves”, in favor of a flexible policy, and “hawks” advocating more orthodoxy, wrote Deutsche Bank At the beginning of April.

Within eight weeks, the ECB will have more information on wage developments and updated economic projections likely to confirm its inflation forecasts. At the current stage of the discussion, the institution "does not commit in advance to a particular rate trajectory", and it will continue to rely on current data to set its monetary course, according to the press release. ING economists estimate that the ECB will opt for a “slow” policy of reducing rates by 25 basis points every quarter.