The European Central Bank does not like surprises, nor does it like to risk its credibility. It had long announced that in June it would proceed with its first interest rate cut and confirmed this last Thursday when the key refinancing rate and deposit rate were cut by 25 basis pointsat 4.25% and 3.75% respectively, from the record highs that had been set since last year in September.

The central bank did not commit, as expected, on when the next rate cut will take place, repeating the cliché that decisions will be made at each meeting based on the latest data available on the inflation outlook.

The president of the ECB, Christine Lagarde, particularly emphasized that there is great uncertainty regarding the speed with which the next interest rate cuts will take place, as well as the time it will take to complete the downward phase of the monetary policy cycle.

The non-commitment, combined with previous statements by central bank officials – such as Bundesbank chief Joachim Nagel and Isabelle Schnabel – that a further cut at the July meeting does not seem warranted, is likely to postpone the decision on the next rate cut until September. provided that the latest data to be announced by then will be consistent with forecasts for inflation to decelerate towards the 2% target in 2025.

The ECB services revised their forecasts for headline inflation in the Eurozone slightly higher – to 2.5% this year and 2.2% in 2025 instead of 2.3% and 2.0%, respectively, which they were predicting in March – which may slow down the rate cut schedule somewhat. However, Lagarde made it clear that the confidence of ECB Governing Council members in achieving the medium-term inflation target has improved significantly.

According to the experts’ analysis, headline inflation will reach the 2% target in the fourth quarter of 2025 instead of the third quarter predicted in March, so we are talking about a time difference of one quarter. For this year, the forecast is that inflation will fluctuate slightly around 2.5%, mainly due to the negative base effect on energy prices and some slight increase in them compared to what was previously expected.

Based on futures prices in the energy markets, it is assumed that the price of oil will average this year at 83.8 dollars per barrel, marginally higher than last year (83.7 dollars), to decrease to 78 dollars in 2025.

The assumption for the price of natural gas in Europe is that it will be reduced this year to 30.8 euros per megawatt hour from 40.6 euros last year, but will rise to 35.4 euros in 2025, dragging the price of electricity upwards to 87 .7 euros per megawatt hour from 73 euros estimated this year.

Food prices, whose increases have decelerated significantly this year, are expected to run at a rate of 3% this year from 10.9% last year, before slowing further to 2.7% in 2025.

Business profit margins are expected to remain flat this year (increasing just 0.1%) after rising significantly by 6.2% last year, while wage increases (remuneration per employee) are forecast to hover close to last year’s levels (4, 8% versus 5.2% to slow to 3.5% in 2025).

The critical question is whether these predictions are borne out by the evidence that will come to light. Lagarde spoke of the reliability of the ECB’s forecasts but emphasized that in the course of reducing inflation there will be obstacles that may affect the course of interest rate cuts.