The European Central Bank is strongly expected to cut interest rates on Thursday, this will be the first time since the start of tightening monetary policy in July 2022.
The central bank is expected to cut interest rates by 25 basis points from 4:00% to 3.75%, and Pierre winch, governor of the Bank of Belgium, also expects an even larger cut of 50 basis points. ECB officials noted that the time is right to start cutting interest rates, arguing that the effects of monetary tightening have not yet fully manifested themselves, with fears that monetary policy will become too restrictive.
Although the latest report showed a slight increase in annual inflation in May compared to the results of April, the governor of the Bank of Italy, Fabio Panetta, commented that the data is in line with expectations and is neither good nor bad.
While this month's decision seems clear enough to predict, the future is less clear, the governor of the Bank of Estonia, Madis Muller, warned that current data do not justify consecutive cuts in the following months. Opinions vary on the number and size of cuts that the ECB may approve by the end of the year, with forecasts ranging from a total of 50 basis points to more than 100 basis points.
Inflation is expected to reach the 2% target next year, possibly in the first half, but central bankers have confirmed that they will follow the guidance provided by monthly economic data and will not commit to any specific course of action in advance. Unlike the Fed, the ECB has not indicated an additional rate hike in the current period, but markets may continue to expect interest rates to stabilize in July due to this cautious approach.
