📝Do Not Expect ECB to Signal Rate Cuts Beyond June: Danske Bank

Recent macro data has placed the ECB in a good position that buys extra time to wait for more data on economic activity, inflation, and wage growth before embarking on a series of rate cuts. With the pickup in growth momentum and inflation still declining, the ECB is in a favourable position to wait for the data in the coming months before making firm commitments on the policy rate path. As a result, we expect the June rate cut of 25bp to be communicated as a roll-back of the ‘insurance hike’ from September last year without a commitment to a specific rate path beyond June. We expect the data-dependent and meeting-by-meeting approach to continue.

Markets have already repriced its expectations for the number of rate cuts by the ECB this year. While a part of the repricing has been spill-over from the US, in particular in the start of the year, the surprisingly strong euro area data has taken this repricing one leg higher this year. Markets are pricing 22.5bp for the June meeting, 16bp for the September meeting, and 61bp by year-end. This is around 25bp higher than at the timing of the April meeting. - Danske Bank