It is widely expected that the Governing Council (GC) will keep its policy rates on hold at the January meeting.
Please find below what we expect:
- The European Central Bank (ECB) to maintain its key interest rates at 4.0% for the deposit rate, 4.5% for the Refi rate and 4.75% for the marginal lending facility.
- The GC to maintain the meeting-by-meeting approach.
- President Christine Lagarde to underline that the ECB does not want to cut interest rates too early because of the underlying price pressures. However, the ECB does not want to keep rates too high for too long because of the risks of excessive tightening on growth and labor market.
- Christine Lagarde to reiterate that the central bank will cut interest rates this year once ECB members are totally convinced that the inflation outlook is close to the 2% target on a sustained basis (in 2025 according to ECB December 2023 economic projections).
In summary, and given what was shared at Davos, we expect that President Lagarde will continue to push back against bets on early and extensive rate cuts. At this meeting, with no fresh macro-economic projections, we do not expect any clear guidance on the timing or size of rate cuts this year due to the ECB’s data dependent approach and uncertainty (i.e., especially related to wages development). Nevertheless, we believe that the ECB communication will be balanced, evoking risks of overtightening and risks of premature easing. This committee may lead to a slight steepening of the interest rate curve and a moderate weakening of the Euro currency.
This commentary is provided for informational and educational purposes only. Past performance is not indicative of future performance. The opinions expressed by La Française Group are based on current market conditions and are subject to change without notice. These opinions may differ from those of other investment professionals. Published by La Française AM Finance Services, head office located at 128 boulevard Raspail, 75006 Paris, France, a company regulated by the Autorité de Contrôle Prudentiel as an investment services provider, no. 18673 X, a subsidiary of La Française. La Française Asset Management was approved by the AMF under no. GP97076 on 1 July 1997.