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The Euribor shows doubts about an ECB rate hike in the face of recession

Date: March 3, 2024 Time: 17:42:37

Stagnant interest rates in the interbank market. The 12-month Euribor stood at 3.928% this Friday in its daily price but it still does not dare to overcome the psychological barrier of 4% on which it has been hanging around since last March on several occasions. The monthly average for June at this point reaches 3.905%, which would mean a minimum increase of 4 basis points with respect to the official average for May at 3.862%.

Doubts grow in the heat of the latest macroeconomic indicators. With the disinflation in the general CPI of the euro zone, the core index -which excludes energy and food- remains “too high” in the eyes of the European Central Bank (ECB), which would push it to raise interest rates again next week which comes from 3.75% to 4%. However, the entry into a technical recession in the euro area in the first quarter of 2023 is sowing uncertainty over the movements of the central bank, until the speed of the economic slowdown is defined.

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What is expected of the ECB?

The forecasts of the experts have hardly changed for the meeting next Thursday. A rise of a quarter of a point, 25 basis points, is expected, but attention will also focus on the macro forecast table that will accompany the central bank’s decision and that will draw the final scenario for July.

“In our view, the ECB is likely to raise its core inflation forecasts throughout its forecast horizon. As for headline inflation forecasts, we expect it to rise this year and remain relatively stable through 2024 and 2025. We expect the ECB to slightly reduce its GDP growth forecasts”, the analysts of the Japanese bank Nomura, Andrzej Szczepaniak, Geroge Moran and George Buckley, pointed out today.

Rubén Segura-Cayuela, Bank of America’s chief economist for Europe, warns of “upward surprises in terms of GDP” next week despite the weakness seen in leading indicators. In his view, the ECB will make it clear that it is in no rush to raise interest rates and will stick with the meeting-to-meeting approach that would anticipate a post-summer pause.

“The eurozone economy is weak (and will remain so for several quarters in our view), but recent ‘hard data’ has remained more resilient than ‘soft data’ would imply. Even in the battered sector German industrial, this week’s production data showed a small improvement. Going forward, weak demand will surely kick in. But in the short term, we see a somewhat resilient mix of industrial production and acceptable service activity: the short-term balance of risks seems to lean towards upward surprises in the GDP data”, explains Segura-Cayuela.

For his part, Felipe Villarroel, partner and portfolio manager at Twenty Four (Vontobel Boutique), believes that the ECB has not yet opened the door to a future pause in interest rates. “The ECB will be happy to see expectations normalize in line with the decline in the headline inflation number (at 6.1% it is below the October 2022 high of 10.6%), but of course On the other hand, expectations remain well above the ECB’s 2% target, which shows that the inflation battle is still ongoing,” he says.

In Villarroel’s view, while the ECB is no doubt concerned that inflation expectations remain well above its target, he believes there is increasing evidence that monetary policy is having an impact on the real economy. “At the same time, receding energy crisis fears have translated into improving economic prospects (from stubbornly bearish levels). Lending rules are expected to hold and inflation to continue to decline but inexorably slow from current levels”, he adds.

* This website provides news content gathered from various internet sources. It is crucial to understand that we are not responsible for the accuracy, completeness, or reliability of the information presented Read More

Puck Henry
Puck Henry
Puck Henry is an editor for ePrimefeed covering all types of news.

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