ECB expected to keep rates unchanged on July 18, but potential rate cuts in future

From Morningstar: 2024-07-15 07:26:00

In a recent poll, 85 economists predicted the European Central Bank to keep interest rates unchanged on July 18. However, more than 80% of respondents expect two more rate cuts this year, in September and December, potentially lowering the deposit rate to 3.25%.

Consumer prices in the eurozone rose by 2.5% in June, slightly lower than May but higher than economists’ expectations. Core inflation, which excludes energy and food, remained at 2.9%. Expectations are for rate cuts in September and December by the ECB.

Analysts anticipate the ECB to make rate cuts in 0.25 percentage point steps, reflecting uncertainty in the eurozone and actions by the US Federal Reserve. Market prices suggest expectations for a terminal deposit facility rate of 2.5%, although the ECB sees the neutral rate at 2%.

Equity markets typically rise on anticipated rate cuts, while bond markets see lower yields pushing bond prices higher. Lower rates may affect cash savings rates, making existing bonds more attractive. Borrowers benefit from cheaper consumer debt and mortgages.

The European Central Bank may lower rates further following its recent cuts in the main refinancing and deposit facility rates. Market expectations suggest the possibility of three more 0.25 percentage point cuts in 2025, while the ECB sees the neutral rate at 2%. Lower rates could impact various financial markets and instruments.



Read more at Morningstar: ECB Rates Decision: What to Expect on July 18