Policy is becoming "meaningfully less restrictive" and uncertainty is rising, with April pause odds at 50/50
- The ECB cut its three key rates by 25bps, including the deposit rate to 2.50% as fully expected.
- There was consensus behind the 25bp cut but there was a rare abstention, from Holzmann.
- The eagerly anticipated statement tweak was a little more hawkish than expected: categorisation of restrictive was watered down to “becoming meaningfully less restrictive” rather than something like “somewhat less restrictive”, but at least it didn’t completely remove the term.
- There was a strong dialling up of the uncertainty to really emphasise that it will stick to a data dependent and meeting-by-meeting stance. This was both in the statement and then throughout the press conference (some thought there was “phenomenal” uncertainty, Lagarde sees risks “all over the place”.)
- Risks to economic growth are still seen to the downside but don’t factor in infrastructure and defence spending plans as it’s premature to asses their impact on inflation.
- There was a modest hawkish repricing with the suite of communications, nearly all of which came on the decision statement itself rather than the press conference.
- Odds of an April pause extended increases in recent days, now viewed as slightly more likely than not. That contrasts to analysts who on balance lean towards another cut in April but with great uncertainty.
- See the report for a summary of rate views across 30 analysts.
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