Comments by Franck Dixmier, Global CIO Fixed Income at Allianz Global Investors.

• The ECB is likely to maintain the status quo at its monetary policy meeting on 11 April.

• But it should give some indication of a first rate cut, which we estimate to be in June.

• We think the ECB’s timing won’t be affected by a likely gap with the Fed’s first cut.

The European Central Bank (ECB) no longer has much reason not to start normalising its monetary policy soon. The trough in euro zone activity is behind us. But above all, the ECB is seeing confirmation of its expected scenario of inflation heading towards its target. The latest inflation figure of +2.4%1 year-on-year in March (compared with +2.5% expected and +2.6% in February) is good news. This downward trend can also be seen in core inflation (+2.9% compared with +3% expected and +3.1% in February). These figures support the significant downward revision to the ECB’s inflation forecasts for the next three years presented at its meeting on 7 March (+2.3% in 2024 compared with +2.6% previously, and a return to the target of +2% in 2025).

It is therefore likely that the turning point of monetary policy will be discussed at the meeting on 11 April and in particular the timing of the first rate cut. While June seems to be the consensus of the Governing Council, the timing and scale of future rate cuts remain open. We expect a measured speech, confirming the very high probability of a first cut in June and presenting it as a first step towards the normalisation of policy. But the ECB will likely insist that future rate cuts are not a given and will depend on the foreseeable trajectory of inflation.

Market expectations are extremely high, with a 98% probability of a 25bp cut in June. However, if the ECB’s comments disappoint investors, tensions could arise in rates markets in an environment where uncertainty is growing over the timing of the Fed's first rate cut, with a 72% probability of a first cut in June.

We don’t think this slight gap between the ECB and the Fed will hinder the ECB, which should reaffirm that it takes its decisions autonomously.