Analysis-Markets see clearer ECB rate-cut roadmap as inflation fog lifts
By Yoruk Bahceli and Dhara Ranasinghe
LONDON (Reuters) — Investors are increasingly confident the European Central Bank may lead global peers with a rate cut in June as new economic projections put on-target inflation in sight.
Markets took Thursday's ECB revisions as further confirmation that interest rate cuts would start soon. The ECB lifted its key rate to a record 4% in its fastest paced hiking cycle in its history, from July 2022 to last September.
Policymakers now see inflation, which surged to a peak over 10% in 2022, falling to its 2% target next year, rather than in 2026.
Germany's interest rate sensitive two-year bond yield fell as much as 10 basis points (bps) to a three-week low as market rate cut expectations rose. European stocks rallied 1%, the euro briefly slipped.
Traders became more confident that cuts would start in June, seeing over a 90% chance, from 85% earlier on Thursday.
ECB chief Christine Lagarde emphasised the bank would have seen a lot more data in June.
Lagarde «was as explicit as she could be for a June rate cut», said Danske Bank chief analyst Piet Christiansen.
Markets now see the ECB lowering rates by just over 95 bps this year, versus just over 90 bps before the meeting.
Another source of comfort was relative optimism on wage growth, which the bank has singled out as the single most important factor determining whether it can cut rates.
«The ducks are lining up», said Seema Shah, chief global strategist at Principal Asset Management, which manages $700 billion, noting Lagarde's comment that wage growth was moderating.
Confidence in a June cut also marks the latest victory for policymakers, who just weeks ago were trying to tame trader bets on speedier rate cuts.
After January's
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