Interest rate turnaround in sight: ECB is heading for its first interest rate cut

Interest rate turnaround in sight: ECB is heading for its first interest rate cut

The European Central Bank (ECB) has decided to leave the key interest rate in the euro area at a record level of 4.5 percent. Despite this decision, monetary authorities indicated that an imminent first interest rate cut was on the horizon. ECB President Christine Lagarde and her council reiterated their willingness to ease monetary policy if the current inflation outlook warrants it.

Since the last interest rate hike in September 2023, the ECB has maintained record high interest rates. Inflation in the euro zone fell to 2.4 percent in March, which is closer to the ECB's target of 2.0 percent. Previous ECB measures, including ten interest rate hikes between summer 2022 and September 2023, have helped control inflation.

The ECB is expected to make its first interest rate cut in June. The decision will be influenced by important data on this year's collective bargaining agreements in the euro countries and new forecasts from the ECB economists. According to a Reuters rate survey in March, more than 88 percent of economists surveyed expect a rate cut in June. The financial market reflects this expectation, and investors estimate the probability of a rate cut in June at around 70 percent.

Overall, there is a clear trend towards easing the ECB's monetary policy in order to respond to the latest economic developments and to stabilize inflation in the euro area.