The Governor of the National Bank of Slovakia, Peter Kazimir, discussed the ongoing rate cut cycle. He mentioned that the Bank is close to wrapping up this cycle, but final decisions will depend on upcoming data. Kazimir highlighted that information collected over the summer will help decide if further changes are needed. The European Central Bank (ECB) recently lowered its deposit rate for the eighth time in this cycle, which suggests a possible pause in rate cuts. The focus now is on analyzing new data to guide future actions. Key concerns include the risk of slower-than-expected growth and ongoing inflation issues. Kazimir’s remarks show a broader understanding among policymakers that the major part of monetary easing may be over for now. His careful choice of words, especially regarding summer data, indicates a methodical and data-driven approach ahead. While decisions aren’t final, the chances of additional rate cuts this year seem low unless the economy changes significantly. In recent months, adjustments to benchmark rates have slowed down. Many expected another cut in the ECB’s deposit rate, which just reached its eighth reduction. However, the tone has become more cautious. Policymakers are signaling that they might take more time before acting. Concerns about economic growth remain, especially as recent forecasts have started to drop. More troubling for rate setters are the inflation risks that still linger. While energy prices have stabilized to some extent, services inflation remains persistent, complicating efforts to bring total inflation down to target levels. Going forward, it’s important not to assume that past trends will continue. We view the pause in rate changes as a sign that central banks are regaining flexibility in their decisions. Overanalyzing single policy movements could lead to misunderstandings. The priority now is to carefully assess new economic data—especially from larger eurozone economies and the outcomes of wage negotiations. Kazimir’s comments also emphasize the importance of timing. His cautious stance about the summer being crucial suggests that we need to closely examine second-quarter data. Key indicators to watch will include wage growth, survey sentiment, and monthly core inflation figures, as recent seasonal fluctuations are less likely to affect interpretations. We anticipate that short-term interest rate markets will remain responsive to changes in ECB expectations. The market is pricing in a pause that could lead to a longer hold, which may lower implied volatility unless economic data surprises significantly. For now, rate traders should assume that short-term instruments have likely reflected most of the easing effects for 2024. Longer-term contracts could still reflect some uncertainty about recession risks. There could be decent opportunities by selectively preparing for potential growth slowdowns, as long as inflation remains within acceptable levels. The balance between core indicators and overall inflation will likely continue to influence floating rate products. Lastly, we should remember that market expectations often move faster than policy decisions. The reliance on data means forecasts could change again by late July, especially if consumer demand weakens or forward-looking PMIs slow down. Therefore, it is essential to be flexible in our strategies and avoid being tied to overly linear rate projections.

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