ECB Outlook for March: Outlook after April remains unclear
2025-03-06
■ ECB is not expected to change its policy on future rate cuts, as the market generally expects a 25-basis point rate cut in March
■ ECB may find it difficult to make a clear statement even if it releases economic forecasts, due to many uncertainties such as the US tariff increase
The European Central Bank (ECB) will announce the Council's resolution on March 6, followed by a press conference by President Christine Lagarde. The market generally expects the central bank's deposit rate cut by 25 basis points to 2.50%. As of February, the ECB estimated the neutral rate to be 1.75%-2.25%, while the German central bank estimated the neutral rate to be 1.8%-2.5%. Therefore, the decision to cut the interest rate to 2.50% will not face much resistance. The meeting will also publish the quarterly economic forecasts of ECB staff, which may trigger heated discussions within the ECB on the path of future rate cuts. At the president's press conference, relevant issues are expected to be the focus of market attention.
According to pre-meeting reports, financial markets are watching whether the statement will retain the statement "monetary policy remains restrictive" or delete it and imply a neutral policy stance. The ECB has previously stated that the neutral interest rate level should not be overly focused on. If the statement is retained, the market may strengthen the expectation that the ECB will continue to cut interest rates in April. On the contrary, if the statement is deleted, the market may tend to believe that the ECB will pause the interest rate cut in April and restart the interest rate cut in June. In terms of the eurozone economic data released recently, the consumer price index (HICP, preliminary value) in February rose by 2.4% year-on-year, of which service prices rose by 3.7% year-on-year, and the growth rate slowed down. As the ECB pointed out in the minutes of the January Council meeting, the upward risk of prices has weakened. Therefore, regardless of whether the statement is adjusted or not, the ECB's interest rate cut policy is not expected to change, and the market reaction may only be short-lived.
In addition, the uncertainty surrounding the eurozone economic outlook remains high, such as the US government's policy of imposing tariffs on the EU and the peace talks between Russia and Ukraine. At present, the US government has only issued a policy statement and has not determined the specific implementation time and tariff targets (category, country). On the other hand, the positions of Russia, Ukraine, the United States and the EU in the relevant negotiations have not yet been unified, and the specific peace process is still difficult to predict. Therefore, it may be difficult for the ECB staff's economic forecast to include the impact of these factors, and the ECB is expected to continue to adhere to the "data-dependent" policy approach. However, the real GDP (revised value) of the eurozone grew by 0.1% quarter-on-quarter in the fourth quarter of last year, a significant slowdown from the previous quarter (0.4%). If the ECB determines in the future that the economy and prices have been substantially affected, market expectations for further interest rate cuts may increase, so we need to keep an eye on this.
■ ECB may find it difficult to make a clear statement even if it releases economic forecasts, due to many uncertainties such as the US tariff increase
The European Central Bank (ECB) will announce the Council's resolution on March 6, followed by a press conference by President Christine Lagarde. The market generally expects the central bank's deposit rate cut by 25 basis points to 2.50%. As of February, the ECB estimated the neutral rate to be 1.75%-2.25%, while the German central bank estimated the neutral rate to be 1.8%-2.5%. Therefore, the decision to cut the interest rate to 2.50% will not face much resistance. The meeting will also publish the quarterly economic forecasts of ECB staff, which may trigger heated discussions within the ECB on the path of future rate cuts. At the president's press conference, relevant issues are expected to be the focus of market attention.
According to pre-meeting reports, financial markets are watching whether the statement will retain the statement "monetary policy remains restrictive" or delete it and imply a neutral policy stance. The ECB has previously stated that the neutral interest rate level should not be overly focused on. If the statement is retained, the market may strengthen the expectation that the ECB will continue to cut interest rates in April. On the contrary, if the statement is deleted, the market may tend to believe that the ECB will pause the interest rate cut in April and restart the interest rate cut in June. In terms of the eurozone economic data released recently, the consumer price index (HICP, preliminary value) in February rose by 2.4% year-on-year, of which service prices rose by 3.7% year-on-year, and the growth rate slowed down. As the ECB pointed out in the minutes of the January Council meeting, the upward risk of prices has weakened. Therefore, regardless of whether the statement is adjusted or not, the ECB's interest rate cut policy is not expected to change, and the market reaction may only be short-lived.
In addition, the uncertainty surrounding the eurozone economic outlook remains high, such as the US government's policy of imposing tariffs on the EU and the peace talks between Russia and Ukraine. At present, the US government has only issued a policy statement and has not determined the specific implementation time and tariff targets (category, country). On the other hand, the positions of Russia, Ukraine, the United States and the EU in the relevant negotiations have not yet been unified, and the specific peace process is still difficult to predict. Therefore, it may be difficult for the ECB staff's economic forecast to include the impact of these factors, and the ECB is expected to continue to adhere to the "data-dependent" policy approach. However, the real GDP (revised value) of the eurozone grew by 0.1% quarter-on-quarter in the fourth quarter of last year, a significant slowdown from the previous quarter (0.4%). If the ECB determines in the future that the economy and prices have been substantially affected, market expectations for further interest rate cuts may increase, so we need to keep an eye on this.