ECB Expected to Hold Interest Rates Steady Amid Anticipation of Future Cuts

The Governing Council of the European Central Bank (ECB), convening for its first session on monetary policy issues, is expected to adopt a wait-and-see approach today. This follows a reduction of interest rates by 0.25 basis points during the previous month’s session. Analysts are closely watching how the ECB will maintain its key interest rates at current levels until new forecasts are published in September.

Today's decisions by the ECB will be announced at the usual press conference held by ECB President Christine Lagarde and Vice President Luis de Guindos, scheduled for 15:35 Cyprus time.

"By keeping interest rates unchanged this Thursday, the ECB is likely to move closer to a further 25 basis point cut in September," noted Germany's Berenberg economics in a recent statement. They also emphasized that the ECB is not expected to pre-empt the anticipated September cut but will stress the importance of focusing on economic data.

Recent data from Eurostat indicates that inflation in June fell slightly to 2.5% from 2.6% the previous month.

Regarding this, Ms. Lagarde remarked in Sintra, Portugal earlier this month that the task of combating inflation "is not over and we must remain vigilant." She highlighted "various uncertainties" concerning the future trajectory of inflation, particularly the interplay of earnings, wages, and productivity, and the potential impact of further supply chain shocks.

"It will take time to gather sufficient evidence to be confident that the risks of inflation exceeding the target have passed," she stressed.

Following the decisions on June 6, the interest rate on the main refinancing operations, as well as the interest rates on the marginal financing facility and the deposit acceptance facility, were set at 4.25%, 4.50%, and 3.75%, respectively.

Berenberg maintains its prediction of a 25 basis point cut in September, followed by a pause until the first quarter of 2025, with two additional 25 basis point cuts thereafter, potentially bringing the deposit rate to 3% by mid-2025.

By fLEXI tEAM