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ECB: Limited Dovish Reaction To Villeroy Comments

ECB
BundesbankCentral Bank NewsFixed Income BulletsCEEMEAEurozoneGermanyBulletMarketsEuropean Central BankForeign Exchange Bullets

Latest headlines from Banque de France Governor Villeroy read dovishly compared to his previous stance. However, cross market impact remains relatively limited. 

  • ECB-dated OIS price 150bps of easing through December 2025 (vs 149bp after the German national flash inflation data). Although Villeroy is generally considered to be an influential dovish-leaning/centrist member of the Governing Council, his comments have probably come in too close proximity to Schnabel’s recent interview to meaningfully sway expectations for next month's meeting.
  • Villeroy’s initial comments around inflation were broadly in line with his previous stance (i.e. returning to target in early 2025), but remarks around the rate path/neutral interest rates are notable.
  • He noted that there is “every reason” to cut rates in December, with optionality needing to be retained around the cut size.
  • Meanwhile, he believes rates should “clearly” move below neutral levels, and that the ECB should consider more forward-looking communication.
  • The comments around the re-introduction of forward guidance come in contrast to remarks from Executive Board members de Guindos, Lane and Schnabel over the last week.

 

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Latest headlines from Banque de France Governor Villeroy read dovishly compared to his previous stance. However, cross market impact remains relatively limited. 

  • ECB-dated OIS price 150bps of easing through December 2025 (vs 149bp after the German national flash inflation data). Although Villeroy is generally considered to be an influential dovish-leaning/centrist member of the Governing Council, his comments have probably come in too close proximity to Schnabel’s recent interview to meaningfully sway expectations for next month's meeting.
  • Villeroy’s initial comments around inflation were broadly in line with his previous stance (i.e. returning to target in early 2025), but remarks around the rate path/neutral interest rates are notable.
  • He noted that there is “every reason” to cut rates in December, with optionality needing to be retained around the cut size.
  • Meanwhile, he believes rates should “clearly” move below neutral levels, and that the ECB should consider more forward-looking communication.
  • The comments around the re-introduction of forward guidance come in contrast to remarks from Executive Board members de Guindos, Lane and Schnabel over the last week.

 

Keep reading...Show less