La Française: ECB to proceed with caution

La Française: ECB to proceed with caution

23 januari 2024

ECB
Geld euro ECB

It is widely expected that the Governing Council (GC) will keep its policy rates on hold at the January meeting.

Please find below what we expect:

  • The European Central Bank (ECB) to maintain its key interest rates at 4.0% for the deposit rate, 4.5% for the Refi rate and 4.75% for the marginal lending facility.
  • The GC to maintain the meeting-by-meeting approach.
  • President Christine Lagarde to underline that the ECB does not want to cut interest rates too early because of the underlying price pressures. However, the ECB does not want to keep rates too high for too long because of the risks of excessive tightening on growth and labor market.
  • Christine Lagarde to reiterate that the central bank will cut interest rates this year once ECB members are totally convinced that the inflation outlook is close to the 2% target on a sustained basis (in 2025 according to ECB December 2023 economic projections).

In summary, and given what was shared at Davos, we expect that President Lagarde will continue to push back against bets on early and extensive rate cuts.

At this meeting, with no fresh macro-economic projections, we do not expect any clear guidance on the timing or size of rate cuts this year due to the ECB’s data dependent approach and uncertainty (i.e., especially related to wages development).

Nevertheless, we believe that the ECB communication will be balanced, evoking risks of overtightening and risks of premature easing. This committee may lead to a slight steepening of the interest rate curve and a moderate weakening of the Euro currency.

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