BNP Paribas expects 75 bps rate cut from ECB next year

(Reuters) – BNP Paribas expects the European Central Bank (ECB) to deliver its first interest rate cut in April 2024 and a “gradual pace of cuts” through the year, citing weak economic activity and easing inflation.

BNP Chief Economist Luigi Speranza sees ECB’s benchmark rate at 3.25% by 2024-end, from 4% currently, with the first cut expected to be by a quarter percentage point.

Traders currently expect 140 bps of cuts through next year, after latest data showed inflation slowed more than expected.

A less hawkish tone from ECB hawk Isabel Schnabel this week strengthened these bets, with money markets expecting the first cut in March.

“We (do not) rule out a March cut, but we consider that it would require sharper disinflation and/or a quicker deterioration in economic activity than in our central case,” Speranza wrote in a note.

Peer Deutsche Bank said on Wednesday it expects ECB to cut interest rates by 150 bps next year, starting with a 50 bps cut in April.

Earlier this month, Goldman Sachs said it forecasts ECB’s first rate cut in the second quarter of 2024, while Morgan Stanley, UBS and Citigroup have placed their bets for June.

BNP expects the central bank to continue to cut rates in 2025 as well, delivering 25 bps cuts every quarter.

Speranza and team see the ECB accelerating qualitative tightening by ending its pandemic emergency purchase programme reinvestments in spring 2024.

The brokerage sees the U.S. Federal Reserve delivering its first rate cut in May.

(Reporting by Subhadeep Chakravarty; Editing by Shilpi Majumdar)