BlackRock: ECB has not yet initiated a rate cut cycle

BlackRock: ECB has not yet initiated a rate cut cycle

7 juni 2024

Rente ECB
ECB.jpg

Ann-Katrin Petersen, Investment Strategist at BlackRock, reacts to yesterday's ECB meeting.

The ECB cut rates today for the first time since September 2019, unusually when growth is improving, inflation progress is still bumpy – and ahead of the Fed. This cut was well telegraphed, but the cutting cycle is not. The jury is still out on the pace of easing from here. We don’t think the ECB will cut far and fast. Investors should keep the big picture in mind: rates in the euro area will likely stay structurally higher than before the pandemic.

  • Well-telegraphed cut, not cycle. As expected, the ECB lowered rates by 25 basis points today, amid growth that has stagnated for much of the past two years and inflation on a – “bumpy” – path back towards target, according to the fresh macro projections. Notably, the jury is still out on the pace of cuts after that. Lagarde reiterated that the ECB will follow a “data-dependent, meeting-by-meeting approach” but signaled that the next cut is unlikely to come before September.
  • Sticky inflation means policy will stay tight. We don’t think the ECB will cut far and fast. Like its hiking cycle, this not your typical cutting cycle: This is not a return to the world we once knew, where inflation was consistently well below the 2% target. With labour markets still tight and productivity weak, domestic price pressures could keep inflation near or above 2%. Given the ECB raised rates to highly restrictive levels, a steady pace of rate cuts over coming quarters would still leave policy weighing on growth. That’s even after accounting for what is likely now a higher neutral policy rate due to structural shifts, as recently acknowledged by ECB officials Isabel Schnabel and Phillip Lane.
  • ECB eases ahead of the Fed. The ECB adjusted its stance before it’s certain what’s next for monetary policy in the US, where inflation progress has been slower and even another rate hike is not entirely off the table. The pace of further ECB cuts may well also be affected by U.S. policy rates.
  • No surprises for markets – for now. Today’s ECB meeting is unlikely to catch markets off guard. Markets were already sceptical about back-to-back ECB cuts. Investors should keep the big picture in mind: rates will likely stay structurally higher than before the pandemic, supporting the appeal of income. We are tactically neutral euro area government bonds as the policy path remains uncertain. Relative to the US we see support for European bonds due to smaller fiscal deficits. We favor US stocks over Europe’s on stronger corporate earnings and the AI theme.

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