towards a reduction in interest rates in 2024

2023-12-11 14:00:01

Isabel Schnabel, member of the Executive Board of the European Central Bank and then member of the German Advisory Council of Economic Experts, during the 29th European Banking Congress in Frankfurt, Germany, November 22, 2019. RALPH ORLOWSKI / REUTERS

Since the beginning of November, things have been in decline. On the financial markets, government bond interest rates are experiencing a very marked decline: Italy’s ten-year interest rates have fallen from 5% to 4%, France’s from 3.5% to 2.7%, of Germany from 3% to 2.2%. Enough to bring real relief to State financing, while budgetary concerns were increasing.

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Behind this runaway markets, in addition to the usual herd effect, is a conviction: central banks have made a shift. After a historic rise in interest rates to stem soaring inflation, the time has come for a break, and cuts are now looming for 2024.

The leaders of the European Central Bank (ECB), whose Governing Council meets on Thursday, December 14, have come to feed this feeling by multiplying their declarations in recent days. The most significant is that of Isabel Schnabel, the German member of the board, classified in the camp of “hawks”favorable to rate increases: “The November inflation figure [à 2,4 % dans la zone euro, loin du pic de 10,6 % à la fin de 2022] was a nice surpriseshe explained on 1^is December. More importantly, underlying inflation [hors secteurs de l’alimentaire et de l’énergie, qui sont plus volatils], which had been stubborn, is falling more quickly than we had expected. It’s quite remarkable. Overall, what is happening with inflation is encouraging. »

François Villeroy de Galhau is on a similar line: “Barring any shock, there will be no further increase in our rates; the question of a reduction may arise in 2024, but not now”has explained the governor of the Bank of France to La Dépêche du MidiThursday December 7.

Watch out for the runaway

Knowing that M^me Schnabel was in charge of raising interest rates, his change of tone did not go unnoticed. « The ECB (…) and pivots »estimates, on X, Frederik Ducrozet, director of economic research at Pictet Wealth Management, an asset management company. He plans a first cut in interest rates “by June 2024”.

Economists at Goldman Sachs are betting on a decline from April. “March is becoming a growing possibility”, even adds a note from the Oxford Economics firm. According to the financial markets, the ECB deposit rate, which rose from -0.5% in 2022 to 4% today, might fall to 2.5% by the end of 2024.

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