ECB and GDP scenario / “April rate cut could save the second part of 2024”

After the words of the Governor of the Bank of France, François Villeroy de Galhau, according to which interest rates are likely to be cut by the ECB in the spring, with the latter lasting “from April to June”, the hypothesis that the ECB will actually cut interest rates is strengthened. in spring. It is possible to ease monetary tightening on April 11 without having to wait until June 6 (indeed, no Eurotower board meetings are scheduled for May). second luigi Campiglio, Professor of Economic Policy at the Catholic University of Milan, “The economic conditions for lowering interest rates exist, and the issue at this stage is to understand how the Central Bank will want to act in relation to the European elections.”

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Please explain this passage to us better, starting with the favorable economic conditions for interest rate cuts.

The ECB's updated forecasts themselves, with the downward revision of both inflation and growth, seem to be telling us that monetary policy tightening has already had its effects, so keeping these levels in place for longer could be harmful. A rate cut could enhance the recovery, albeit minimal, and given that we will be voting in the European elections in June, one can also ask which political groups might be more favored by a rate cut.

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Or which ones would benefit from keeping interest rates at current levels?

The only party that could be negatively affected by an interest rate cut are the German and Nordic parties. Conversely, if the reduction is not made, Eurosceptics in the Global South will benefit. It is clear that postponing the decision until June will not be in Europe's interest. I think it would be better to ease interest rates, even if they are minimal, as early as April.

Does this also apply to the Fed?

Let's not forget that the FOMC will also meet from April 30 to May 1, so there is also an intervention window abroad. But given the different economic situation, it is possible that the US central bank will also wait until June. Overall, there is a favorable situation for interventions that can unleash existing, but not yet realised, growth potential.

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Between April 11 and June 6, there are less than two months: can they really make that much difference?

As often happens, it is a matter of expectations. The first months of the year were not bad, but the European economy is suffering from a slowdown. It would be good to give an important signal of expectations, such as a cut in interest rates, long before the summer holidays start, so that the third quarter, which is traditionally more dynamic, can bring more impetus to growth. Growth in the second half of the year.

To achieve a rate cut in April, resistance will be overcome Germans? Or will it be necessary for President Lagarde to take a clear position?

In this regard, in my opinion, a crucial question arises regarding European decisions. If a country, even a large one, is hesitant or opposed to the agreed reduction after two months at most, I would say the Latin proverb applies. carpe diem Therefore, President Lagarde must do everything to seize the moment to give enough impetus to allow the recovery to be less sluggish than it has been so far.

(Lorenzo Torrisi)

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