NBP: Litwiniuk Highlights Potential for Activist Rate Cuts in H2
NBP's Litwiniuk says rates could be cut by more than 100bps in 2025.
That comment from Litwiniuk not their first comment on rates this month - earlier this week they didn't rule out a rate cut before July (although the specific language was potentially softer than that wording suggests - Litwiniuk suggested there was a "non-zero" chance of a rate cut before July)- and highlighted the sensitivity of the MPC to the upcoming labour market data. We also note that the July meeting is when the NBP will be in possession of the next macroeconomic projections update.
- Rate cuts of "more than" 100bps this year is toward the more aggressive end of expectations for the board this year - with most sell-side eyeing rate cuts from Q3 onwards.
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SCHATZ: Block trade
Schatz Block trade, suggested seller:
- DUH5 ~7k at 106.715.
STIR: SOFR FIX - 19/02/25
| SOFR FIX - Source BBG/CME | ||
| 1M | 4.32021 | 0.00841 |
| 3M | 4.33003 | 0.00811 |
| 6M | 4.30668 | 0.01088 |
| 12M | 4.24548 | 0.01391 |
ECB: Hawkish Leaning Interview From Schnabel
Highlights from Schnabel's interview with the FT. It’s a hawkish leaning interview as you might expect from her general stance. Key focus for markets are her comments around the potential for pausing rate cuts.
- “The more evidence we have that monetary policy is no longer restrictive, the more cautious we have to become because further rate cuts may no longer be appropriate”.
- Highlights the Q4 BLS, which indicated a tightening of credit conditions: “The data are showing that the degree of restriction has come down significantly, up to a point where we can no longer say with confidence that our monetary policy is still restrictive. One of the important data sources in this context is the bank lending survey”.
- Asked on the need for insurance cuts given uncertainty: “I don't see any argument for that at this point, especially as we are getting closer to no longer being restrictive. If anything, we are getting closer to the point where we may have to pause or halt our rate cuts”.
- However, she said that she would "exclude" a rate hike at this stage.
- “ One of the most interesting features of this tightening cycle is that it has not led to a comparable tightening of broader financial conditions. “
- “Both services inflation and wage growth are still at an uncomfortably high level”.
- On R*: Echoes Executive Board colleagues and the ECB’s heavily caveated neutral report: “The natural rate of interest is an important theoretical concept. But it’s not well-suited to determine the appropriate monetary policy stance”.
- “If you look at the R* estimates for the third quarter, you see that the range actually goes up all the way to 3%. This is even above the current deposit facility rate of 2.75%”…”The one thing that you do see is that the overall range seems to have moved up over recent years. For me, that is the key point”.
