The first meeting of the year 2025 of the European Central Bank has not left great surprises. Christine Lagarde’s message, president of the ECB, fits with what was expected by analysts, and now, once The Central Bank has confirmed that the situation is under control, and that it is most likely that inflation reaches the objective of 2% this yearthe big question is what the ECB will do in the coming months until this goal is achieved. In this sense, the neutral interest rate (the equilibrium level, in which they neither stimulate, nor contract economic activity and inflation) becomes special importance, and there have also been news in this front in the meeting this Thursday, with The announcement of the Lagarde that the ECB’s estimates on the neutral type situation will be known on February 7.
Knowing where the ECB that is the neutral, or equilibrium type is key, is key to drawing the scenario of upcoming declines of types of the Central Bank. Many analysts now place it in 2%, that is, 75 basic points below the current reference type of the Central Bank (2.75% in which the deposit rate is maintained), but we will still have to wait a week To know what is the estimate that the Governing Council of the ECB maintains.
However, even if it is assumed that there was unanimity in which the neutral type is 2%, there is the possibility that the ECB decides to lower the reference interest rate below that level, if it intends to give a boost to a European economy that continues to give signs of weakness. Everything will depend on how the macroeconomic situation is evaluated by the Central Bank in the coming months (Lagarde has been responsible for making clear this point this week) and if you consider that it is necessary to push a euro zone that has its two historical engines gripped: France and Germany.
Analysts such as Roelof Salomons, Estatega Head of Investments for the Netherlands of Blackrock Investment Institute, They believe that the ECB will not need to lower interest rates below neutrality: “Our base scenario is that the ECB will cut the types in all its meetings, consecutively, until reaching 2% in summer. Why? First, because low growth and moderate inflation will support these descents. , because we believe that the ECB is going to put the neutral type as its objective, to even stimulate, or contract, the economy, “says the expert.
This scenario that draws Salomons is the one that the markets now buy, which discount a decrease in types in March, followed by another in April, and one last in July, with an important possibility that the latter is even before, at the meeting of June. The opinion of Konstantin Vel, portfolio manager in Pimco, coincides with this scenario: “The current terminal price of the types [el nivel en el que terminará este ciclo de recortes]around 2%, it coincides in general with our estimates of a neutral interest rate of the euro zone, and essentially represents a soft landing scenario, “says Veit.
The alternative to this road map that is most repeated among investors is that the ECB goes down a step below the neutral type, to try to boost the weak European growth.
In this sense, Salman Ahmed, a global manager of Macro and strategic assignment of assets of Fidelity International explains how “market participants have aligned themselves with the evaluation of the ECB of neutral rates around 2%. However, We see a greater probability of cuts towards a accommodating territory, given the challenging growth perspective “he points out.
As Fidelity’s strategist, from Nomura they coincide by pointing out that the weakness of the European economy will force the ECB to take the types below the neutral level. “We maintain a forecast that the ECB will lower the types below the neutral level, in order to support the economy, in particular, after the GDP data of the last quarter of 2024which surprised at 20 basic points at the expectations of the ECB. We hope that the terminal type is 1.75%, in September 2025, “says the Japanese bank.
Lagarde, prudent as always, has assured that, neither she, nor the ECB, know what they will do, because they need to have the data on the table to be able to make the right decision. For her, the only thing that can be done at this time is to raise the different scenarios that can boost, or punish, to economic growth and inflation in the euro zone. “Growth can fall if the delayed effects of our types of types last more than expected, or it could be greater if financial conditions, accommodations, allow investments to bounce with force,” he explained in the press conference.
On the other hand, it states that “inflation may be higher if salaries and business benefits last more than expected, or by geopolitical tensions, which can increase energy and freight prices. In addition, climatic events ends can increase food prices more than expected, “he says.
On the contrary, it considers that “inflation may fall if there is low economic confidence, and if the concerns for geopolitics prevent consumption from recovering. Or if the economic context in the rest of the world worsens unexpectedly,” he says.
In this scenario fork, we will have to wait to see how the European economy develops in the coming months. The dependence of the data on which Lagarde insists in recent months forces to follow the macroeconomic publications closelysince the decisions of the Central Bank will be conditioned to what happens in the macro front.
The path of the Fed is different
This week’s ECB meeting has arrived a day after that of the Fed, and the conclusions of both have made it very clear that the two central banks have separated their paths, and now they run through different paths: the Fed is avoiding lowering types Because of the strength that its economy is showing, while in Europe the central bankers hope to lower types several times, and there is the debate on the decrease of types below the neutral level to try to give a boost to growth.
“The progress of disinflation has stagnated and strong economic growth has avoided a weakening of the labor market. Consequently, the Fed is not in a hurry to reduce rates at this time,” explains David Kohl, chief economist of Julius Baer. At the same time, from Fidelity, Max Stinton, the manager’s macro strategist, highlights how “we expect a cocktail of tariff policies and a significant reduction in immigration that will increase the risk of inflation and, given that the labor market is stabilizing in Place of softening, this reinforces our opinion that the committee will maintain the current policy during 2025, prioritizing political stability over possible premature adjustments. ”
Taking into account the type cut that the ECB has carried out this week, If the scenario that the markets are discounting is fulfilled, in the euro zone the types 4 times in 2025 will be cut, and in 100 basic points, while the schedule planned for the Fed will be half aggressive: 2 drops of types in total, which will leave the complete cut in 50 basic points at the end of 2025.
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