Traders see ECB cutting rates by 150 basis points through 2024

TRADERS are ramping up bets on the extent of monetary easing from the European Central Bank in 2024 as policymakers signal they’ve probably tightened enough to bring inflation back to target. 

Money markets see 150 basis points of interest rate cuts through next year, the most priced so far this cycle, according to swaps tied to central bank meetings. The first quarter point cut is seen coming as soon as March.

While policymakers are still warning of the threat posed by inflation, they’ve also increasingly acknowledged that further hikes above 4 per cent will likely not be needed. Isabel Schnabel, regarded as one of the governing council’s most hawkish members, said in a recent interview with Reuters that the decline in inflation has been “remarkable”.

Euro area inflation has dropped swiftly over recent months, measuring below the median estimates for three consecutive readings. The 2.4 per cent year-on-year rate for November, down from 5.3 per cent in August, is closer to the ECB’s 2 per cent target than at any point since mid-2021.

Last week Francois Villeroy de Galhau – considered a centrist – said “barring any shock, rate hikes are now over,” and raised the prospect of cuts next year. BLOOMBERG