Earlier today, the ECB's Kazimir said market bets for a Q1 rate cut are 'science fiction'. Deutsche Bank disagrees.
In a preview for next week's ECB decision, the German bank changed its call and now sees:
- 150 bps in ECB rate cuts in 2024 vs 100 bps previously
- The first cut to come in April and it will be 50 bps with another 50 bps in June. Previous call was for 25 bps in June
- "A significant risk" of a cut in March
As for next week, DEB economists anticipate that the ECB will recognize the faster-than-expected decline in inflation but will be cautious about declaring victory over inflation too soon. Lagarde will emphasize the data-dependent nature of its policies, indicating that the duration of restrictive rates will depend on economic data.
"At the next press conference on 14 December we expect the ECB to acknowledge that inflation has declined more rapidly than expected but to be coy about declaring victory prematurely," the report says.
Another lever the ECB could pull is the Pandemic Emergency Purchase Programme program. There could be an early exit from the PEPP reinvestments, with a baseline expectation of an announcement in March 2024 and a phased exit from Q3-2024.
The main thing to watch for will be new ECB forecasts, which will undoubtedly show a quicker return to 2% inflation.
As for FX " it now looks like the ECB will be easing before the Fed" and they say that a weaker euro wouldn't be an impediment to cuts.