European Central Bank on course for June easing

Summary

The European Central Bank held monetary policy steady at today's announcement, though we view the accompanying statement as laying the groundwork for a probable ECB rate cut in June. The ECB cited an easing in underlying inflation and moderating wage growth. In addition, the ECB's announcement and ECB President Lagarde suggested that so long as updated forecasts confirmed the improving inflation outlook, monetary policy easing would be appropriate at the June 6 meeting.

That said, we believe the ECB will pursue a measured pace of rate cuts during the second half of this year. That reflects some lingering inflation concerns, particularly as it relates to services inflation, and the likelihood of gradual Eurozone economic recovery as this year progresses. We forecast an initial 25 bps ECB policy rate cut in June, but then expect the central bank to forgo monetary policy easing in July. Instead, we expect the ECB to deliver 25 bps rate cuts in September, October and December for a cumulative 100 bps of easing this year. That is a slower pace of rate cuts than our previous forecast, though still more than the cumulative 76 bps of rate cuts currently priced in by market participants for the remainder of this year.

Download The Full International Commentary