Investors are speculating on the first interest rate cuts by the end of June 2024

Several representatives of the European Central Bank (ECB) have countered speculation about interest rate cuts in the first half of next year. The ECB will have to stay at the interest rate peak in the next few quarters, said Slovakia’s chief monetary watchdog, Peter Kazimir, on Monday in an article on the website of his national central bank. “Bets on interest rate cuts as early as the first half of next year are completely misguided,” he explained.

Lithuania’s central bank chief Gediminas Simkus made similar comments. “I would be surprised if we had to cut interest rates in the first half of next year,” he told reporters in Vilnius.

Investors speculate

However, the prices on the money market currently show that some investors are already speculating on the first interest rate cuts by the end of June 2024. The ECB decided on Thursday at its external interest rate meeting in Athens to take a break from interest rates in view of the weakening economy and declining inflation figures. The key interest rate at which banks can obtain fresh money from the central bank remains at 4.5 percent. The key deposit rate on the financial market, which financial institutions receive from the central bank for parking excess funds, was left at 4.00 percent – the highest level since the start of the monetary union in 1999. According to ECB President Christine Lagarde, a discussion about an interest rate cut would be completely premature , as she said at the press conference after the interest rate decision.

“We have to stay vigilant”

Kazimir noted that, in his view, the upside risks to inflation have not yet completely disappeared. “We must remain vigilant,” he noted. Important milestones for the ECB are the economic and inflation forecasts of the ECB economists in December and then in March. Kazimir hopes that it has become clearer how wage negotiations will develop for the year as a whole and whether the risk of a spiral of high prices and high wages is off the table. “Only then will we be able to say that the tightening cycle is complete and we can move on to the next – monitoring – phase.”

Therefore, further interest rate increases for Kazimir have not been completely shelved. Further tightening could be decided if economic data forced the ECB to take such a step, he explained. Lithuania’s central bank chief Simkus said: “Economic activities and economic development currently suggest that this is not necessary.” He added: “And I would hope so.”