DWS: ECB will slowly reduce interest rates again from the summer of 2024
According to Martin Moryson, Chief Europe Economist at DWS, the ECB rate hike cycle is now over. The central bank will slowly reduce interest rates again from the summer of next year.
'With today's rate hike of another 0,25 percentage points, the rate hike cycle should be completed. We assume that the European Central Bank (ECB) will keep its feet still from now on until it starts to slowly lower interest rates in the summer of next year.'
'The ECB has adjusted its projections sharply: Against the backdrop of rising oil and food prices, it has raised its headline inflation forecast for this year and next. The ECB now expects that even next year, average annual inflation will be well above 3% - far from its inflation target. The ECB did not have to make any adjustment to the core rate, which by design does not depend on oil and food prices.'
'On the other hand, the ECB had to revise its previously quite optimistic growth expectations downward. For this year and next year together, it expects cumulative growth of only 1,7% (just like us), after still assuming 2.4% in June. The background to this is that the recovery, which is supposed to be driven by consumption, among other things, is now expected to start later due to rising oil prices.'
'All in all, this is likely to be the last interest rate step. The economy in the euro area is already weakening sufficiently to make a renewed rise in inflation very unlikely. Only in the - as said - unlikely event of inflation rates really getting out of hand and exceeding the ECB's already quite high inflation expectations would the ECB take another step upward.'