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When Will the European Central Bank Start Cutting Rates?

Interest rate cuts could start as soon as April, investors say. But the eurozone’s central bank, which held rates steady on Thursday, has said it will probably wait longer.

If what goes up must come down, then the urgent question on the minds of many in Europe is when will interest rates begin dropping? For months, rates have been set at the highest in the European Central Bank’s history.

Despite the protests of the eurozone’s policymakers, investors have been betting that the central bank will cut rates quite soon — possibly in April. Traders figure rates must come down because inflation has slowed notably — it’s been below 3 percent since October — and the region’s economy is weak. By the end of year, the central bank will have cut rates by more than 1 percentage point, or between five and six quarter-point cuts, trading in financial markets implied.

Policymakers, however, are trying to pull market opinion in the other direction and delay the expectations of rate cuts. Many of the central bank’s Governing Council are wary of declaring victory over inflation too soon, lest it settle above the bank’s target of 2 percent.

On Thursday, the European Central Bank stuck to this outlook. It held interest rates steady, leaving the deposit rate at 4 percent, where it has been since September. The bank said rates were at levels that, “maintained for a sufficiently long duration, will make a substantial contribution” toward returning inflation to 2 percent in a “timely manner.”

Benchmark interest rate in the eurozone

European Central Bank’s deposit facility rate.

Source: European Central Bank

By The New York Times

Inflation in the eurozone

Year-over-year change in consumer prices in the eurozone.

Source: Eurostat

By The New York Times

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Source: Elections - nytimes.com


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