The anticipated cut would bring rates down by 25 basis points to 3.75%. However, the trajectory of policy rates beyond June remains uncertain, with the ECB underscoring its reliance on economic data to guide future decisions.
According to UBS’s baseline scenario, after the initial cut in June, the ECB may embark on a prolonged and incremental sequence of rate reductions. These would consist of 25 basis point cuts each quarter, leading to a total decrease of 75 basis points in 2024 and an additional 100 basis points in 2025.
This gradual approach would result in the deposit facility rate reaching 3.25% by the end of 2024 and 2.25% by the end of 2025.
The ECB’s cautious stance reflects a commitment to data-dependent policymaking, suggesting that any subsequent rate cuts will be closely tied to incoming economic indicators. The central bank’s approach indicates an effort to balance the need for economic stimulus with the risks of inflation and other financial stability concerns.
This forecast from UBS comes amid a broader context of global central banks grappling with the challenges of inflation and economic growth. The ECB’s potential rate cut in June would align with efforts to support economic activity in the Eurozone while being mindful of the evolving economic landscape.
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Source: Economy - investing.com
