Christine Lagarde will have to carefully choose every word of the speech she will deliver this Thursday if she wants to relax investors’ optimism, but without any drama to avoid a market scare. Today takes place last monetary policy meeting of the year that will be carried out by the Governing Council of the European Central Bank (ECB) and it is expected, basically, no concrete decision and a lot of dialectics to get the next month and a half on track until the meeting scheduled for January 25, 2024 .
Except surprise, The European banking supervisor will maintain interest rates at current levels for the second consecutive meeting. That is, 4.5% for the refinancing rate, 4% for the deposit facility and 4.75% for the marginal credit facility. And he will also review the macroeconomic picture of the euro zone, something he has not done since September because the forecasts are made on a quarterly basis.
In general terms, different analysis firms and large international banks expect Lagarde to retain certain expressions in her story, such as the term data-dependent which was coined last summer when it began to be interpreted that the ECB could follow in the footsteps of the Fed and make the first pause in the escalation of official rates. This Thursday, the ECB has two very relevant inflation data on the table from previous months that confirm that the transmission of a much stricter monetary policy is already being felt in the economy and is being able to contain prices. Last month The Eurozone CPI was 2.4%, “the lowest since July 2021, compared to 2.9% in October. Core inflation was 3.6% compared to 4.3% the previous month, a drop that was reflected in both goods (2.9% compared to 3.5%) and services (4% compared to 4 .6%)”, they emphasize from Allianz GI.
The ECB is expected to adjust its CPI estimates downwards, but the focus will undoubtedly be on what word Christine Lagarde will use to refer to what Many investors are taking the last few weeks for granted and it is a first rate cut in March of the year that would be followed by four more until October, which means cutting by 125 basis points rates from current levels. This has triggered equities in the last month and a half, with gains for the Ibex still of 13% since then (it remains above 10,000, despite the last week of falls). Bank of America understands that the verbal communication that Lagarde will use will suggest that “a first cut” will be the next step to take, “although not immediately.” “The risk of seeing a rate cut in April is high, but not obvious yet,” they point out in their analysis.
The Allianz manager considers that It is time for the ECB to “moderate investor expectations”somewhat hasty in his opinion if one takes into account that we are talking about next March 20. So much optimism, according to the German firm, responds to the fact that “the slowdown in inflation has surprised investors.”
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