BENGALURU, Nov 14 (Reuters) – The European Central Bank will keep interest rates stable well into next year, with a majority of economists polled by Reuters sticking to their forecasts that the first rate cut will wait at least until July despite expectations of a euro zone must recession.
Last month, the ECB left its deposit rate at a record high of 4.00% after raising rates in 10 consecutive meetings, and all 72 economists agreed in a Reuters poll from Nov. 8-13 that it was in There will be no further increases in the current cycle.
While financial markets are currently expecting a rate cut in April, the latest Reuters poll suggests that is unlikely, especially after ECB President Christine Lagarde said last month: “Even discussion of a rate cut is completely, completely premature.”
A majority of around 55%, 40 of 72, predicted interest rates would remain at current levels until the middle of next year. The remaining 45% was cut sometime before the July Governing Council meeting.
The results are similar to a poll last month in which 58% expected no cuts before the July meeting.
“It appears that not much needs to happen to push the euro zone into recession,” wrote Peter Vanden Houte, chief euro zone economist at ING, noting that the ECB had acknowledged that growth had been weaker than expected.
“But that doesn’t mean the ECB is in a hurry to cut rates… We don’t expect any rate cuts before the summer of 2024.”
A sooner-than-expected rate cut would likely require a recession deep enough to prompt easing, even if inflation remains above the ECB’s 2% target.
Over 40%, 15 of 35 economists, predicted another contraction this quarter after a flash estimate showed the 20-nation bloc’s economy contracted 0.1% in the third quarter, meeting the official definition of a recession. However, the weakest GDP forecast for the coming quarters was a modest -0.3%.
When asked what type of recession the eurozone could fall into, a large majority of 24 out of 29 respondents said it would be short and superficial. Three said long and flat, one said long and deep and another said short and deep.
The US Federal Reserve is currently forecast to ease monetary policy slightly earlier than the ECB by the end of the second quarter, although most economists say the bigger risk to their forecasts is that the easing comes later.
The ECB, which began raising interest rates a few months later than the Fed, could weaken the euro and lead to unwanted imported inflation if it acted before the Fed.
Meanwhile, price pressure was expected to remain persistent. Headline inflation, which the ECB is targeting at 2.0%, fell to a more than two-year low of 2.9% last month after peaking at 10.6% in October 2022. It was forecast to remain around current levels in the first half of next year and an average of 2.7% in 2024.
Core inflation – excluding fluctuating food and energy prices and a better assessment of underlying demand – averaged 5.0% this year and 2.6% next year.
The survey found that the unemployment rate is expected to rise only slightly from the current 6.5% to 6.7% by the end of 2024.
(For more stories from the Reuters Global Economic Survey:)
Reporting by Prerana Bhat; Survey by Purujit Arun, Rahul Trivedi and Sarupya Ganguly; Editing by Ross Finley
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