14 December 2023
If you are covering the news that the European Central Bank has left interest rates unchanged, please find below a comment from Richard Carter, head of fixed interest research at Quilter Cheviot:
“The ECB has once again held interest rates, and like the Federal Reserve appears to be at the end of future rate hikes in this cycle, with inflation so close to the magic 2% target. Inflation has been falling consistently in the Eurozone and came in at just 2.4% last month, indicating that it was almost job done for Christine Lagarde in nursing the economic environment back to normal. But just as rate hikes appear to be at an end, speculation is being fuelled that central banks will now turn to rate cuts in spring next year in order to stimulate growth.
“Given this backdrop, expectations of rate cuts in early 2024 are likely to focus first on Europe as a result of the economic predicament it is facing, even despite the Fed’s pivot yesterday. Germany is in recession and its other economies are hardly firing on all cylinders. Should growth continue to be hard come by, businesses, politicians and investors will be clamouring for the ECB to begin cutting rates and stimulate the economy. However, given the cautiousness at the beginning of the rate hiking cycle, it is unlikely the ECB will want to act quickly on cutting rates, instead favouring an approach where it is sure inflation is under control and there wouldn’t be any unintended consequences from its actions.
“Higher for longer will continue to be the message, but in Europe that narrative is likely to be tested to the max and we could easily see it have to pivot first out of all the developed central banks.”
