All eyes on trajectory of interest rates amid ECB dovish hold

(Alliance News) - All eyes remain on the trajectory of interest rates across the globe, after the European Central Bank kept rates on hold on Thursday.

"Yesterday's European Central Bank (ECB) meeting and Lagarde's press conference went according to the plan," said Ipek Ozkardeskaya, senior analyst at Swissquote Bank.

The Frankfurt-based official lender left the interest rate on the main refinancing operations, the marginal lending facility, and the deposit facility at 4.50%, 4.75% and 4.00%, respectively.

This marked the fourth-successive meeting the central bank has left eurozone interest rates unmoved. The ECB has enacted 450 basis points - 4.5 percentage points - worth of hikes during the current cycle. It kicked off the hiking cycle in July 2022 with its first interest rate lift in 11 years.

"Although most measures of underlying inflation have eased further, domestic price pressures remain high, in part owing to strong growth in wages. Financing conditions are restrictive and the past interest rate increases continue to weigh on demand, which is helping push down inflation," the ECB said.

For 2024, the ECB lowered its inflation forecast to an average of 2.3%, substantially lower than its 2.7% forecast in the December macroeconomic projections. The forecast for 2025 has been lowered to 2.0% from 2.1%, and for 2026, it was maintained at 1.9%.

ECB President Christine Lagarde said rate cuts were not discussed at this month's monetary policy meeting

Telling reporters in a press conference following the decision, Lagarde said policymakers have only "just begun" talk on "dialling back" the ECB's restrictive monetary policy stance.

As far as rate cuts go, Lagarde comments suggested the wait will end in June at the earliest. She said policymakers a "little more data" to mull over by the April decision, but "a lot more" in June.

Meanwhile, an ECB governing council member on Friday said the ECB will "very likely" cut interest rates in the spring, further fuelling market hopes that the move could take place by June.

The comments by French central bank governor Francois Villeroy de Galhau came a day after the ECB decided to keep rates steady for a fourth straight meeting.

"It seems very likely to me that there will be a first rate cut in the spring," Villeroy de Galhau told broadcaster BFM Business, adding that "in Europe like elsewhere, spring is a season that goes from April to June".

Swissquote's Ozkardeskaya said that "the dovish message was well received from the market."

Meanwhile, analysts at Oxford Economics said "the chances of an April rate look slim with June explicitly mentioned."

Yet, Richard Carter at Quilter Cheviot spoke about the broader implications of the hold across the globe.

"Just yesterday the European Central Bank opted to hold rates once more, signalling a broader trend of prudence among central banks, with the Federal Reserve and the Bank of England expected to shortly follow suit. Central banks are navigating a delicate balance, wary of unsettling the hard-fought gains against inflation, but soon one of them will need to make the first move and kick start the shift in policy," Carter said.

By Sophie Rose, Alliance News senior reporter

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