Francois Villeroy de Galhau, European Central Bank Governing Council member and French central bank chief, said the ECB's next step should be to lower interest rates, while the ECB will be guided by economic data rather than calendar considerations. However, he warned that interest rates will remain at record high levels for some time, while the ECB will assess the consequences of the latest tightening of monetary policy. Overall, Villeroy de Galhau signaled that a rate cut was not imminent.
The ECB intended to send a message of 'confidence and patience' to markets, Villeroy said, but added that recent rate hikes were trickling through into the real economy slightly faster than initially thought.
Meanwhile, against the background of the results of the December ECB meeting, Barclays economists revised their forecast for easing the ECB's monetary policy and now expect the first rate cut by 0.25% in April 2024 (previously expected a reduction in July 2024). Barclays said the monetary easing cycle, which will begin in April 2024 and run until January 2025, should reduce the deposit rate to 2.25%. It projects that a pessimistic growth outlook than that of the ECB and inflation cooling at a faster pace should prompt the central bank to cut rates sooner.
However, Danske Bank economists did not change their forecast in response to yesterday's statements by ECB President Lagarde, and indicated that the ECB will likely begin cutting interest rates in June 2024, reducing it by 0.25%. Though with the ECB sticking to its data-dependent approach, weaker-than-expected data could result in the first rate cut occurring earlier than Danske Bank's call.