(Bloomberg) -- Lowering interest rates prematurely would be a worse mistake for the European Central Bank than reducing them too late, according to a survey of economists who see one fewer cut now in 2024.

Almost two-thirds of respondents reckon moving too hastily to reverse the barrage of rate hikes enacted to tame inflation would carry greater dangers than waiting too long — a sentiment voiced by several members of the Governing Council.

Like they did when quizzed before the ECB’s last policy meeting in January, 56% of analysts still see officials avoiding such a mistake by selecting the right time to start loosening monetary conditions. They continue to predict an initial move in June.


“The ECB has a trade-off between cutting too soon — and risking a resurgence in inflation and potentially having to raise rates again — versus cutting too late,” said Andrzej Szczepaniak, an economist at Nomura. “The latter is clearly the better scenario to be in.”

With inflation receding and monetary officials in the US and the UK also gearing up to ease policy, respondents forecast three quarter-point reductions by the ECB this year. That’s down from four in the last survey, though, as policymakers in Frankfurt fret that rapid wage rises could imperil the reversal in price gains toward the 2% goal.

No change in the ECB’s deposit rate, currently 4%, is envisaged on March 6-7, when the Governing Council convenes next. Economists, investors and most officials are now in alignment over a first cut coming in June.

President Christine Lagarde said Monday that “the current disinflationary process is expected to continue.” But price growth only slowed to 2.6% in February, exceeding economists’ expectations, while underlying pressures also eased less than envisaged in a report on Friday. 

Executive Board member Isabel Schnabel has joined Bundesbank President Joachim Nagel and other hawkish officials in warning against lowering borrowing costs too soon, with risks including sticky services inflation, a resilient labor market and Red Sea tensions.

Doves, though, worry more about a stuttering economy that narrowly dodged a recession in the second half of 2023, and fret about undershooting the 2% price goal.

While reining in their easing predictions for 2024 a little, economists still see the deposit rate at 2.25% at end-2025.

“Now that the market has almost adjusted its pricing and expectations regarding the timing of the first rate cut, the biggest challenge will be to avoid any unwarranted misguiding,” said Carsten Brzeski, global head of macro at ING. 

He thinks the ECB should present more details on its reaction function by “adding more color on where it needs to see actual inflation, wage developments and longer-term inflation projections in order to start cutting rates.”

Alongside the ECB’s policy decision, Thursday will bring a new round of quarterly economic forecasts, where a majority of analysts anticipate downward revisions to growth in 2024 and 2025, and to inflation this year. Most see price gains for 2025 and 2026 — vital for the ECB given the transmission lag of monetary policy — to be unchanged at 2.1% and 1.9%.

Despite inflation seemingly on track to hover around 2%, some economists don’t exclude that borrowing costs will stay high for longer.

“There’s risk of fewer rate cuts than our baseline or rates staying on hold for longer if inflation and wage growth prove more persistent,” said Dennis Shen, senior director at Scope Ratings. He calls geopolitics another “core” danger.

“Such scenarios present risk of further supply-side shocks, potentially affecting the price-stability outlook and holding the potential to place on hold if not even reverse policy-normalization steps,” Shen said.

Survey respondents listed the US presidential election in November and the rise of populists in Europe among their top hazards.

Turning to the ECB’s review into how it implements monetary policy, they see officials signaling preferences for a smaller balance sheet and demand-driven liquidity provision, as well as a permanent bond portfolio and higher minimum reserve requirements.

--With assistance from Aline Oyamada.

(Updates with euro-area inflation in seventh paragraph.)

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