Cautious interest rate cuts

The European Central Bank (ECB) will cut interest rates this year when there is evidence of a stable inflation outlook consistent with its 2% target, ECB policymaker Francois Villeroy de Galhau said.

The euro symbol in front of the European Central Bank (ECB) headquarters in Frankfurt, Germany. Photo: AFP/TTXVN

In October 2023, the ECB decided to keep interest rates unchanged, ending a streak of 10 consecutive increases with a total increase of 4.5% since July 2022 to deal with peak inflation of 10.6%. Economists forecast that the ECB will cut its base interest rate by a total of 1.46% in 2024, with the first rate cut likely to be 0.5% in March.

It would make more sense for the ECB to cut rates before the Fed does the same because the eurozone economy is weaker than the US, said Daniel Morris, head of market strategy at BNP Paribas' asset rating division. US economic growth remains strong and the Fed can afford to wait for further signs of slowing inflation. The first 0.25% US rate cut is scheduled for May and the Fed could cut six times in 2024, bringing the benchmark rate to 3.75%-4%, from the current 5.25%-5.5%.

In the final weeks of 2023, investors are betting that central banks on both sides of the Atlantic will cut interest rates quickly this year, fueling the biggest two-month global bond rally in years. But how big and how long the cuts will last depends on many factors. In the eurozone, inflation rose from 2.4% in November 2023 to 2.9% in December 2023.

In the US, inflation is showing signs of rising again as the consumer price index increased by 0.2% in December 2023 compared to the previous month and increased by 3.2% compared to the same period in 2022. Moreover, Mr. Craig Inches, head of interest rates at investment management company Royal London Asset Management, said that the increasing inflationary pressure due to tensions in the Middle East is one of the factors that are difficult to predict for central banks, almost no one can predict the risk of a global recession. At that time, interest rate cuts will be reconsidered.

KHANH MINH

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