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May 24 - 12:55 PM

Danske: ECB Expected to Deliver a Political Rate Cut in June

By eFXdata  —  May 24 - 10:45 AM

Synopsis:

Danske Bank anticipates a political maneuver from the ECB with a 25bp rate cut on June 6, characterized as a reversal of last year’s precautionary increase. Further adjustments in monetary policy are projected to follow a cautious and data-driven approach.

Key Points:

  • June Rate Cut: The ECB is anticipated to adjust rates downward by 25 basis points in June, viewed largely as a political move to reverse the previous year’s ‘insurance hike’.
  • ECB's Forward Guidance: Post-June, the ECB is likely to maintain its meeting-by-meeting, data-dependent stance, indicating a careful approach to future rate decisions.
  • Revised Rate Path: Danske has updated its ECB rate forecast for the first time in over a year, predicting two rate cuts in 2023 (June and December) and three additional cuts in 2024, targeting a deposit rate of 2.75% by the end of 2025.
  • Market Repricing: Financial markets have adjusted their expectations, now anticipating a 61 basis point reduction in ECB rates for the current year.

Conclusion:

Danske’s outlook suggests a strategic calibration of the ECB’s policy rate, starting with a June rate cut framed as a correction of a previous increase. This move is seen as part of a broader, cautious strategy to navigate economic indicators and gradually reduce rates over the coming years, aligning closely with evolving economic data.

Source:
Danske Research/Market Commentary

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