Two important pieces of evidence have been published, today and yesterday, adding weight to the case that the EU will begin interest rate cuts as soon as next month.
Today, the European Commission published both its latest Euro-area GDP figures, and its Spring Economic Forecast, entitled ‘A gradual expansion amid high geopolitical risks’.
European Commission’s forecast
In its forecast, the commission spoke on interest rates, saying that:
Expectations for imminent and decisive rate cuts across the world have been pared back in recent weeks. In the euro area, where the European Central Bank last hiked its policy interest rates in September 2023, markets now expect a more gradual pace of policy rate cuts than in winter. Euribor-3 months futures suggest that euro area short-term nominal interest rates will decrease from 4% to 3.2% by the end of the year and to 2.6% by the end of 2025.”
The decrease from 4% to 3.2% implies rate cuts of at least 25 basis points, at least once every two to four months, for the rest of 2024, starting in June.
IMF forecast
An address yesterday on May 14 at the ECB House of the Euro in Brussels, by Director of the International Monetary Fund (IMF) European Department Alfred Kammer, lends weight to this.
In his speech, Kammer said that:
Inflation rates remain elevated in several European countries, this necessitates a careful and measured approach to monetary policy easing. We project that the ECB will reduce its policy rate starting in June with cuts of 25 basis points each quarter until it reaches a neutral stance at 2.5 percent in September 2025.”
The message from both the European Commission and the IMF seems to be clear: interest rate cuts will be more gradual than initially expected, but they will begin soon.
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