ECB to keep rates on hold until mid-2024 despite stagnant economy – Reuters poll

BENGALURU, Nov 14 (Reuters) – The European Central Bank will keep interest rates steady until next year, with most economists polled by Reuters saying the euro zone would wait until at least July for the first cut, despite expectations. Depression.

Last month, the ECB left its deposit rate at a record 4.00% after raising rates for 10 consecutive meetings, and all 72 economists polled by Reuters Nov. 8-13 agreed there would be no more hikes in the current cycle.

With financial markets now expecting an April rate cut, a recent Reuters poll suggests that is unlikely, especially after ECB President Christine Lagarde said last month that „even discussion of a cut is completely, completely premature.”

A 55% majority, 40 out of 72, predicted rates would remain at current levels through the middle of next year. The remaining 45% saw a cut before the ECB Governing Council met in July.

The results are similar to a survey last month in which 58% expected no cuts ahead of the July meeting.

„It appears that not much will have to happen to push the eurozone into recession,” wrote Peter Vanden Hout, chief eurozone economist at ING, noting that the ECB acknowledged growth was weaker than expected.

„But that doesn’t mean the ECB is in a rush to cut rates… We don’t expect any rate cuts before the summer of 2024.”

Even if inflation remains above the ECB’s 2% target ahead of an expected rate cut, easing will require a sufficiently deep recession.

More than 40%, 15 of 35 economists, forecast another contraction this quarter, with the 20-member group’s economy shrinking 0.1% in Q3, meeting the official definition of a recession. But the weaker GDP forecast given for the coming quarters is -0.3%.

Indeed, when asked what kind of recession the euro zone might enter, a strong majority of 29 respondents, 24, said it would be short and shallow. Three said long and shallow, one long and deep, and another short and deep.

For now, the US Federal Reserve is predicted to ease policy slightly earlier than the ECB, in the final Q2, although most economists say there is more risk to their forecasts than it will move later.

The ECB, which started raising rates months later than the central bank, could weaken the euro and introduce unwanted imported inflation if it moves ahead of the central bank.

Meanwhile, price pressures were expected to stick. Headline inflation, targeted by the ECB at 2.0%, fell to a two-year low of 2.9% last month from a peak of 10.6% in October 2022. In the first half of this year it was projected to remain where it is now. The average for the next year and 2024 is 2.7%.

Core inflation – stripped of volatile food and energy prices and a better gauge of basic demand – was seen to average 5.0% this year and 2.6% next year.

The unemployment rate is only expected to rise to 6.7% by the end of 2024 from the current 6.5%, the poll showed.

Our Standards: Thomson Reuters Trust Principles.