In a cautious tone, ECB Vice President Luis de Guindos said yesterday that “For September, the decision is open,” dropping no hint on whether the central bank would deliver another rate hike, or pause.

Nevertheless, de Guindos was clear about the new economic projections to be published at the September meeting. He noted, “forecasts for economic growth are worse than we had projected in June, while inflation projections are similar to what we had in June.”

De Guindos added that the ECB is “entering the final stretch” of its tightening cycle. He put emphasis on second-round effects and inflation expectations as the factors for any future monetary policy decisions.

In a Reuters interview, ECB Governing Council member Peter Kazimir emphasizd a cautious approach toward rate cuts. Kazimir explicitly stated, “There is no reason to rush a rate cut,” pinpointing June as his “preferred date”. “April would surprise me and March is a no go,” he added.

His comments reflect a strategic desire for a “smooth and steady cycle of policy easing,” contingent on a thorough assessment of the initial steps toward loosening monetary policy.

Kazimir highlighted the rapid disinflation observed at the “headline level”, albeit with remaining uncertainties around core inflation “because wage developments remain unclear.” The upcoming collective bargaining deals are deemed pivotal in clarifying this outlook.

Market forecasts now anticipating a 90bps reduction in interest rates by the year’s end, starting in June. Kazimir acknowledged this revised market sentiment as “more realistic.”

Germany’s ZEW Economic Sentiment rose from 12.8 to 15.2 in January, above expectation of 12.7. Current Situation index fell slightly from -77.1 to -77.3, below expectation of -77.0.

Eurozone ZEW Economic Sentiment fell from 23.0 to 22.7, above expectation of 21.9. Current Situation index rose 3.4 points to -59.3.

ZEW President Achim Wambach noted that “Economic expectations for Germany have improved again,” attributing this positivity partly to expectations that ECB will cut interest rate in the first half of the year. This expectation is shared by “more than half of the respondents ”

Furthermore, Wambach highlighted that there are even more pronounced shifts in US interest rate expectations. He stated, “More than two-thirds of the respondents predict interest rate cuts by the US Federal Reserve in the next six months.”

Wambach also pointed out that the recent rise in inflation in Germany and Eurozone in December does not seem to have influenced the monetary policy expectations of the respondents.

Full German ZEW release here.