**As seen in Risk In The Week report 01/19/24, subscribe at cablefxm.co.uk/reports
The ECB left rates unchanged at 4.5% in December, the central bank's forecast horizon continues to project inflation above target. Growth is seen at 0.8% this year before rising to 1.5% in 2025. The latest activity data has been subdued with both manufacturing and services PMIs reading under 50.0, we have recently seen the latter catching down with the manufacturing underperformance. Despite weak growth, inflation is still seen as too high and this has kept the central bank from endorsing the market's pricing on rate cuts. More recently, Lagarde said that it is likely that the ECB will cut rates by the Summer.
The desk at UBS said that the January ECB meeting is likely to be a 'non-event' as the central bank will likely wait for further wage and inflation data. Analysts a Deutsche Bank expect the first rate cut to come as soon as April, they pencil a total of 150bps of easing by the ECB this year. Behind Deutsche Bank's thinking is the potential for further downside surprises in growth, they see a mild recession during 1Q, while they expect inflation to go back to target by mid-2024.
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