(Finance) – Everything postponed to June due to a rate cut by the ECB. The President Christine Lagarde in the press conference following the Board meeting he confirmed that they persist “domestic inflationary pressures“, even in a deflation scenario, and that will be necessary evaluate the data carefully in the next months. There will be greater certainty in April and “much more in June” and with this indication the number one in Frankfurt seems to have given a clear indication of a rate cut at the end of the first half of the year.
But what do analysts think?
“Since the ECB has been in charge of defining interest rates for the Eurozone, it has lowered them 21 times, and never when core inflation was above 2.2%. Today core inflation is at 3 .1% and will not fall below 2.2% before the summer. Unless an unexpected event occurs that affects growth or financial stability.” comment Sylvain BroyerChief Economist EMEA of S&P Global Ratings, saying he is convinced that “an ECB rate cut in June is therefore the most likely scenario.”
“As we expected, the ECB remains on hold and maintains its data-dependent position, meeting by meeting. Since late last year, markets have ruled out a substantial amount of rate cuts. Current valuations look much more reasonable, and no further from our baseline”, comments Konstantin Veit, Portfolio Manager of PIMCO. “Once the ECB starts cutting rates – continues the analyst – we believe it will proceed cautiously with conventional 25 basis point steps. We expect three rate cuts this year, starting in June or later. the trend in wages is key.”
Richard Flax, Chief Investment Officer of Moneyfarm, notes that “the ECB therefore appears reluctant to declare a premature victory against inflation, as also underlined by chief economist Philip Lane”, but “the next meeting, scheduled for 11 April, could provide new useful indications on future moves by policymakers, with important implications on the markets and investors’ expectations”. “With inflation still above target levels and an uncertain wage dynamic, the expert underlines – the ECB seems destined to navigate on sight, maintaining a prudent approach to monetary policy”.
“The President made a more explicit reference to the timing of the first cut, saying that “we’ll know a little more in April, but we’ll know a lot more in June.” This is the best he can do in terms of signaling the first cut, adding that market prices seemed to be converging for the better,” explains Frederik Ducrozet, Head of Macroeconomic Research at Pictet Wealth Managementclarifying that “uncertainty, however, remains linked to the pace of easing once the cycle starts” and it is expected that “the ECB will move cautiously in 2024, probably pausing in July after the June cut and moving at an easing pace of 25 basis points per meeting starting in September.”
“The joint reading of the downward revision of inflation estimates and Lagarde’s words confirm the hypothesis that the season of rate cuts will begin no earlier than the wage data at the end of April. Therefore, the hypothesis outlined in the outlook for the ECB (and also for the Fed) of 4 cuts in 2024 starting from June (eventually the start would be postponed to July at the latest) remains confirmed”, confirms Antonio Cesarano, Chief Global Strategist of Intermonte.
The implications for mortgages
Each postponement of the rate cut will have different implications for the families with a mortgage. For sector experts “the time really seems to be almost ripe for a cut in interest rates and a consequent normalization of the market”.
For Mortgage Online “today the fixed rate is an optimal solutionwith the possibility of obtaining TAN just above 2.50% in the case of “green” solutions; this is a lower cost than the average of fixed rates between 2014 and 2018, which stood at 2.78%. And if rates drop further in the future, subrogation can always be considered.
MutuiOnline.it simulations confirm this significant savings in offers compared to a year ago: for a twenty-year mortgage of €160,000 requested by a forty-year-old resident in Milan, to March 2023 the best fixed rate was expensive 3.60% and he had one installment of 936 eurosWhile now it costs 2.73% with a installment of 866 euros. Today also considering the green offers the rate drops further at 2.55% and the monthly installment of 852 euros. In practice you save between 16,800 and 20,200 euros in total interest.
The same simulation leads to completely different results if you analyze i variable rate mortgages: a year ago the best variable rate mortgage had a Tan of 3.30% with a installment of 912 euroswhile now the installment rose to 1,033 euros and the Tan to 4.74%. In the event of a drop in the Euribor as forecast, the installment would reach €941, a good €92 less than today but still higher than a year ago.