Synopsis:

HSBC forecasts that the European Central Bank (ECB) will maintain its key policy rates at 4.0% during the April 11 meeting, aligning with signals for a potential rate cut in June. Recent data, including decreases in headline and core inflation for February and mixed wage growth indicators, align with ECB expectations. Despite this, only significant deviations in the upcoming March inflation data might influence an earlier rate adjustment.

Key Points:

• April Meeting Expectations: The ECB is likely to keep policy rates unchanged in April, considering the bank's previous hints at a more substantial data review by June. Christine Lagarde, ECB President, emphasized the importance of observing more comprehensive data before making adjustments.

• March Inflation Data Impact: A significant divergence in the March inflation figures might trigger a debate on the pace of rate cuts. However, an uptick in inflation is anticipated due to seasonal effects and a shift in consumption patterns, making an April rate cut less likely.

• Future Rate Cut Considerations: While an April rate adjustment seems off the table, the ECB's guidance in April could set the stage for potential rate cuts starting in June. The focus will likely shift towards the ECB's readiness for a July cut, contingent on inflation trends aligning with expectations.

Conclusion:

HSBC anticipates the ECB to hold steady on interest rates at its upcoming April meeting, with a strong indication of initiating rate cuts by June. Despite potential fluctuations in the March inflation data, the central bank's decision-making is poised to rely on a broader dataset, making significant policy shifts in April unlikely. Attention will increasingly turn towards the ECB's future meetings for cues on the pace and timing of rate adjustments, particularly the possibility of a July cut.