ECB on hold but forecasts to boost case for rate cuts

The European Central Bank is set to keep borrowing costs steady for a fourth meeting, though new economic projections should bolster arguments for cuts to start later this year.

Analysts unanimously predict the deposit rate will be held at a record 4%, with most officials continuing to caution that it's too soon to declare victory over inflation — despite it nearing the 2% goal.

Fresh quarterly forecasts produced by the ECB's staff are expected to reveal a speedier journey back toward the target, giving policymakers more assurance as they contemplate unraveling their unprecedented bout of hikes.

But with the Federal Reserve and the Bank of England also still mulling when to begin loosening monetary policy, Christine Lagarde and her colleagues are in no hurry. The ECB president is likely to again signal an initial reduction in June, when there'll be more clarity on whether Europe's labor market is cooling.

That's a timeline that investors and economists also now agree on, shifting the debate to how quickly rates will be lowered and where they'll end up as the euro zone's 20-nation economy remains mired in stagnation.

Lagarde will speak at 2:45 p.m. in Frankfurt, 30 minutes after the ECB's policy announcement. She will have chaired a meeting that saw several Governing Council members attend remotely because of strikes of airport ground staff and train drivers in Germany.

Few of the Governing Council's 26 members have voiced a preference for easing before June, by which time officials will have digested a slew of reports on wages — their top focus at present.

Many warn against jumping the gun, saying the consequences of a rebound in inflation would be far worse than those of keeping borrowing costs where they are a little longer.

"Even though it may be very tempting, it's too early to cut interest rates," Bundesbank President Joachim Nagel said last month.

February's inflation reading came in a little hotter than anticipated — reinforcing such sentiments. But a Nowcast model by Bloomberg Economics showed inflation edged below the ECB's 2% target for the first time since 2021 this week.