Officials of the European Central Bank during their meeting on Thursday, July 18, will most likely not make decisions on any changes in interest rates and will hold the corresponding indicator at the same level.
Economists interviewed by the media currently adhere to a kind of consensus opinion, according to which the European financial regulator will keep the deposit rate at 3.75%. They also argue that the ECB will not begin implementing a mitigation strategy for further easing monetary policy, providing for lowering the cost of borrowing, until there is evidence that progress in the anti-inflation process is on a forward trajectory towards the bank’s 2% target and generates concrete results in the context of the relevant dynamic. It is worth noting that in June, the financial regulator made the first decision on cutting interest rates. At that time, the deposit rate decreased by 25 basis points, to the current level of 3.75%. At the same time, the continuation of the actions of the financial regulator to further ease monetary policy, according to many experts, will not be fast and will become what can be described as a time-spanning process.
Economists interviewed by the media also do not expect that there will be any specific guidance on future borrowing costs following the meeting of ECB officials scheduled for Thursday. This point of view is based on the fact that a lot of important data in the relevant context will be made public only in the coming weeks.
The main expectations of experts are focused on the September meeting of ECB officials. In their opinion, it is in the mentioned month that the financial regulator will decide on cutting interest rates by a quarter point. By September, ECB officials will receive more information about progress in the anti-inflation process by examining the contents of two more monthly reports on the dynamic of the growth in the cost of goods and services, and new data on changes in salary and productivity indicators.
Also, by the beginning of autumn, there will probably be greater certainty in the space of the political situation in France and additional clarity will emerge regarding the state of affairs in the United States in the context of the approaching presidential elections scheduled for November. Moreover, it is expected that by September the position of the Federal Reserve System regarding the prospects and extent of monetary policy easing in the US will be more specifically and unambiguously outlined. It is worth noting that in the era of globalization, many processes have become more closely interconnected. In the context of economics, these specifics of modernity mean that the decisions of the central bank of one country can have an impact on the situation in other states and be a factor in correcting or even coordinating the decisions of other financial regulators. Globalization has become a circumstance that has shaped the current configuration of the world economy.
Among analysts, the most common point of view is that the ECB will make two more decisions on lowering the cost of borrowing by the end of the current year. It is expected that these decisions will be made by the financial regulator in September and December. The markets have a similar point of view. In this case, one lowering of the cost of borrowing is estimated as the most realistic probability. At the same time, the prospects for the materialization of a second such solution are perceived as less realistic. However, markets assume that the second lowering of the cost of borrowing will rather be fixed as an objective fact, rather than remain in the space of unfulfilled forecasts, which scales in parallel with the continuation of human history.
Economist David Powell says that increases in compensation per employee, the ECB’s official time series on negotiated wages, and services inflation have left the Governing Council reluctant to cut again without more information that price growth is weakening. According to the expert, against the mentioned background, the lowering of the cost of borrowing in July is extremely unlikely, but in September the realism of such a decision will increase sharply due to slowdowns.
It is worth noting that ECB officials also hinted that cutting interest rates in the current month does not belong to the category of scenarios whose materialization is guaranteed. Chief Economist Philip Lane said during a conversation with media representatives that the data that will be available at the July meeting will not answer all the questions.
