The European Central Bank assesses the speed of inflation decline before announcing interest cuts and credit easing

The European Central Bank is likely to use its meeting on Thursday as a prelude to its first interest rate cut in June, as major central banks, including European and American, assess how quickly inflation will ease and allow credit relief for businesses and consumers.

Stock investors are closely watching the outcome of today’s meeting, after markets have risen in recent months on expectations of a rate cut by the summer. Broad-based stock indices fell immediately in America on Wednesday and bond prices rose, after the inflation report raised concerns that the Fed may… Waiting longer than previously thought for a rate cut.

Analysts said: The European Central Bank, “the monetary authority for the 20 countries that use the euro currency,” is unlikely to change its interest standards on Thursday. Instead, the post-decision statement and the conference of its president, Christine Lagarde, will be scrutinized for hints about the path forward. Possible downside interest rates in the future.

Lagarde dropped what analysts interpret as broad hints that the bank will wait at least until its June 6 meeting to take any action while it waits to see sustained evidence that inflation is under control.

With inflation in the euro zone falling to 2.4% in March, down from its peak of 10.6% in October 2023, Lagarde’s statements made many believe that a cut would be in place in June, and the focus today will be on how much guidance Lagarde will be willing to provide during her conference.

“We will mainly be looking for two things: changes in communications and some hints about the size of the first and subsequent interest rate cuts,” said Carsten Brzeski, head of global macroeconomics at ING Bank.

The European Central Bank and other central banks in the developed world tend to reverse some of the sharp increases in interest rates that were imposed with the aim of controlling inflation.

The Swiss National Bank was the first major central bank to reduce interest rates in the current session on March 21, while Japan was the biggest exception, as it raised interest rates for the first time in 17 years on March 19.

High interest rates help suppress inflation by raising the cost of borrowing to buy things, which can cool demand for goods, but they can also slow growth if they are overstated or maintained for too long.

Growth in Europe has been anemic to say the least, as the eurozone economy did not grow at all in the last three months of 2023, and expectations for numbers from the just-ended quarter are not much better, and the European Central Bank is preparing to cut rates even as uncertainty grows about the possibility of its American counterpart reducing them. for the first time.

US inflation of 3.5% in March and strong US job numbers indicating strong growth led to questions about whether the Federal Reserve will continue with the three interest rate cuts it indicated this year, while analysts believe that the US cuts may be less or may come at a later time. Later than originally expected.

Interest rate cuts can boost stocks because they signal that the central bank sees a strong future economy that will boost corporate profits, and because low interest rates make stocks relatively more attractive compared to interest-bearing property such as bonds or CDs.