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The ECB does not raise interest rates and leaves the price of money at 4.5%: asset managers react
Macro

The ECB does not raise interest rates and leaves the price of money at 4.5%: asset managers react

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27 OCT, 2023

By RankiaPro Europe

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At its meeting today, the ECB announced that interest rates will not continue to rise, at least for now. These are the first reactions of international fund managers

Martin Wolburg, senior economist at Generali Investments

The Governing Council’s unanimous decision to stay on hold and President Lagarde’s statement that a discussion of rate cuts was totally premature confirms us in our view that the first key rate cut is still far away. Supplementary policy measures like the stop of PEPP reinvestments or an increase in the Reserve Requirement Ratio were not discussed suggesting to us also that monetary policy uncertainty increased in the light of the latest geopolitical tensions and weak growth data. All eyes will be on the Dec 14 meeting when new macro projections will take into account for the new macro environment.

Gurpreet Gill, Macro Strategist Global Fixed Income, Goldman Sachs Asset Management

We believe the ECB’s hiking cycle is complete and expect today’s decision to keep rates on hold at 4% to extend into 2024. Rising energy prices present a fresh upside risk to headline inflation but subdued growth and cooling core inflation will likely preclude further rate hikes.

Our base case expectation is for a rate cut from the third quarter next year, though a sharp slowdown in the economy or a larger-than-expected deterioration in the labour market could prompt an earlier shift towards policy easing.

Konstantin Veit, Portfolio Manager, PIMCO

he European Central Bank (BCE) is currently in automatic pilot mode regarding interest rates. Although the institution in Frankfurt could further increase interest rates, attention has shifted to the likely duration of the peak of interest rates. The risks remain oriented towards cuts in interest rates a little later than the current market expectations. For a full normalization of inflation towards the 2% target, further cooling of the economy and some weakness in the labor market are necessary.

Although the market context has not been favorable for a decision on the reinvestment of the Pandemic Emergency Purchase Program (PEPP) today, it is expected that the ECB will aim for an early cut. It is not expected that the ECB will categorically exclude the sale of bond exposures, but it is expected to continue to focus on a gradual and orderly passive reduction of reinvestments.

Ulrike Kastens, Economist Europe, DWS

For the first time since July 2022, the European Central Bank (ECB) decided today not to increase interest rates. However, if inflation evolves in line with the ECB's and our forecasts, the September 2023 rate hike will probably be the last: inflation rates will continue to decline due to base effects and underlying factors. 

Moreover, the ECB will also face economic pressures: sentiment indicators, credit standards, and the decline in loans indicate a significant weakening of domestic demand. In the medium term, this will open the door to an adjustment of interest rates. A first rate cut is still expected at the end of the second quarter.The ECB has raised interest rates ten times, bringing the rate on main refinancing operations to 4.5% and the deposit rate to 4% as of September 20, 2023. However, the ECB's decisions will continue to be guided by data, and the future decisions of the Governing Council will ensure that the ECB's reference interest rates are set at sufficiently restrictive levels until the inflation target of 2% is reached in the medium term. The ECB is independent and cannot accept instructions from any institution, government, or other body.

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