Morning Market Brief: April 12, 2024

ECB continues to hold rates steady?

The European Central Bank (ECB) came into the spotlight yesterday, one day after the Bank of Canada (BoC) held its benchmark overnight interest rate steady. As widely expected, the ECB held its key interest rate steady at a fifth consecutive meeting. Comments suggest a pivot to rate cuts might not be that far off for the ECB.?

• Europe’s central bank held its policy interest rate steady at 4.50%, leaving it at record high levels. A Bloomberg survey showed economists were expecting the ECB to hold steady at a fifth straight meeting.
• The ECB believes its rate hold was warranted. The central bank deems its rate restrictive, helping to pull down inflation. Still, it has more work to do to bring inflation back to its 2% target. The ECB believes inflationary pressures remain elevated, hindering consumer and business activity, particularly in its critical services sector.
• Expectations are rising that a rate cut is possible in June. The ECB seeks more confidence that inflation is consistently falling. But ECB President Christine Lagarde said officials believe upcoming data will show a further decline in inflation, which might change its outlook in June, opening the door for a potential rate cut.
• The BoC kept its policy interest at 5.00% on Wednesday. The US Federal Reserve Board and Bank of England are scheduled to announce their next interest-rate decisions in early May. Both are currently expected to hold steady at those meetings.

This week has brought more evidence of a strong likelihood of the BoC and other central banks beginning to lower interest rates this year. With inflation slowing and economic strength waning, these central banks might look to pivot to help stimulate economic activity. However, they are trying to be careful not to stimulate too soon, which could push inflation up again.

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