Pablo Hernandez de Cos, European Central Bank Governing Council member and Bank of Spain governor, said that the updated economic forecasts for GDP and inflation, which will be presented after the announcement of the results of the ECB's March meeting, will be extremely important for policymakers when deciding when to start the monetary policy easing cycle.
"The forecasts will help assess the ECB's progress in bringing inflation back to the 2% target and the risks associated with it. In addition, forecasts will be key to assessing the trajectory of rates, which is compatible with reaching our symmetrical target," de Cos said, adding that after an erroneous assessment of the price spike following the pandemic and Russia's invasion of Ukraine, confidence in staff forecasts has increased markedly.
“Errors in forecasts have been very small and even negative in recent quarters, which means that inflation figures were slightly below forecasts. In general, I expect that the decline in inflation will continue in the coming quarters," the politician said.
The latest Survey of Professional Forecasters (SPF) showed that respondents revised down their expectations for headline inflation as measured in terms of the Harmonised Index of Consumer Prices (HICP). Headline HICP inflation was expected to decline from 2.4% in 2024 to 2.0% in both 2025 and 2026. Expectations for 2024 were revised down by 0.3% and those for 2025 by 0.1%.
Markets were pricing in a 48% chance of a first 25 basis points ECB rate cut in April, after pricing it in fully at the end of January. In addition, ECB euro-short-term rate forwards priced in 115 basis points of rate cuts by year-end, from around 120 basis points yesterday and 140 basis points last week.