ECB Set to Cut Rates in June – Reuters Poll

An European Central Bank interest rate cut on June 6 is widely anticipated, with a majority predicting two additional reductions in September and December, according to Reuters poll of 82 economists conducted on Wednesday.

While all economists foresee a 25 basis point reduction in the deposit rate to 3.75 per cent on June 6, financial markets only price in two rate cuts for 2024, marking a notable contrast between economic forecasters and traders.

The majority expectation for three rate cuts this year reflects a shift in economists’ views, with many scaling back their previous calls for more aggressive cuts.

Despite signs of encouraging inflation, a recent uptick in wage growth has sparked debates over the ECB’s ability to swiftly lower rates. This uncertainty arises as the US Federal Reserve delays its first rate cut, now expected no earlier than September and priced for November by markets.

The poll also suggests that while some economists have moderated their expectations for rate cuts, the median forecast indicates a modest reduction of 150 basis points in the deposit rate to 2.50 per cent during the upcoming cutting cycle.

However, with wage growth projected to remain above 3 per cent until at least 2026, inflation is likely to remain elevated for an extended period, posing challenges for the ECB’s monetary policy decisions.

Despite the eurozone economy’s better-than-expected performance, with a growth rate of 0.3 per cent last quarter and a projected expansion of 0.3 per cent in the following two quarters, uncertainty persists, deterring expectations of a traditional rate-cutting cycle.

The forecast suggests economic growth averaging 0.7 per cent this year, reflecting an upgrade from previous estimates.