LONDON (Reuters) – Danske Bank said on Friday it expects the European Central Bank only to cut interest rates twice this year, not three times, while Barclays also scrapped a call for a July reduction.
Markets currently show traders are pricing in around 60 basis points’ worth of cuts that would bring the ECB’s benchmark interest rate to around 3.4% by December.
Piet Haines Christiansen, Danske chief analyst and a closely followed ECB watcher, said in a note he expected a “political cut” in June, but nothing in September.
“We have revised our ECB rate path for the first time in more than 12 months and now expect the ECB to deliver two rate cuts this year (June and December), and three cuts next year. This will bring the deposit rate at 2.75% by the end of 2025,” he said.
It was Danske’s first change to its forecast in more than a year and Christiansen said his team expected the ECB to repeat its meeting-by-meeting and data-dependent approach to monetary policy beyond June.
“The updated June staff projection is expected to suggest that the prevailing economic and monetary policy narrative stays broadly unchanged and we expect the rate cut to be formulated as a roll-back of the ‘insurance hike’ from September last year,” Christiansen added.
Analysts at Barclays had also changed their ECB call late on Thursday due to the “elevated uncertainty” around inflation and with economic activity accelerating faster than anticipated.
“We now think the ECB Governing Council will move more gradually this year.”
“We continue to expect 25 basis points of cuts at each forecast meeting (Jun-Sep-Dec), but no longer expect a cut at July’s nonforecast meeting,” they added, referring to the fact the ECB will not publish new economic projections in July.
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