Barclays, UBS advance ECB rate-cut to April on cooling inflation

Brokerage firms Barclays and UBS Global Research have advanced their expectations on the start to policy easing by the European Central Bank (ECB) to April, on the back of cooling inflation and slowing growth becoming factors for them to unwind their hawkish view.

The ECB did not signal a pivot in contrast to the US Federal Reserve, and said it did not even discuss policy easing in the latest meeting and left rates unchanged at a record-high of 4 per cent, the Reuters reported on Friday.

Even after this, brokerage Barclays brought forward their view on the start to rate cuts from July to April, pointing that a delayed start would force the ECB to catch up and even raise the quantum of cut to 50 basis points.

Brokerage firm UBS, on the other hand, had earlier anticipated a start in June.

The rate cuts from April through January 2025 should take the deposit rate to a terminal rate of 2.25 per cent, Barclays noted.

As a matter of fact, consumer price growth in the euro zone has dropped to 2.4 per cent in November, at a far more than expected rate.

"As inflation decelerates and the output gap becomes more negative, the policy stance becomes even more restrictive," as per Barclays economist Mariano Cena.

"For this reason, we think that it would not be hard to find a consensus among GC (governing council) members to cut policy rates faster toward neutral if the starting date were to be pushed later," Cena added.

Reuters conducted a poll of economists last week that predicted expectations around the ECB cutting rates in the second quarter of next year.
Notably, HSBC expects the first cut in June, significantly ahead of its earlier forecast for December, citing a "tepid" pushback from the ECB against market pricing and softer inflation data.

UBS said the ECB will deliver its second rate cut in June, followed by 25 bps rate cuts per quarter, thus bringing down the deposit rate to a "broadly neutral" rate of 2 per cent by the end of 2025.