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MNI ECB Review-October 2024: First Back-To-Back of the Cycle

The ECB cut policy rates by 25bp as expected, but remained noncommital on the December meeting.
Central Bank ReviewECB - ReviewEurozoneCentral Bank ReportsGlobalStoryRegionMarkets

EXECUTIVE SUMMARY: 

  • The ECB cut the deposit rate by 25bp as expected with President Lagarde indicating that the disinflation process is playing out faster than previously expected. Despite the acceleration in the easing cycle, and with policymakers previously steering markets towards projection meetings, President Lagarde was noncommittal on the policy outcome of the December meeting and reaffirmed the ECB’s meeting-by-meeting and data dependent approach.
  • Although we had argued before the meeting that cutting policy rates on the back of a discrete number of new data points would pose a communication challenge for the ECB, Lagarde referred to a wide range of indicators that indicate inflation will return to target in a timely manner.
  • While domestic price pressures and robust wage growth have underpinned the ECB’s cautious easing cycle, economic growth is becoming more of a concern and is feeding into the inflation outlook.
  • That the ECB delivered a back-to-back cut despite the paucity of new data, and having repeatedly stressed the importance of the productivity-wage-profit channel as a fundamental driver of the inflation outlook, suggests that growth concerns have moved the meter for the GC. Nonetheless President Lagarde stressed that based on the current evidence, the eurozone was not heading towards a recession and that a soft-landing scenario was still the baseline.

FOR THE FULL PUBLICATION PLEASE USE THE FOLLOWING LINK:ECB Review October 2024.pdf

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EXECUTIVE SUMMARY: 

  • The ECB cut the deposit rate by 25bp as expected with President Lagarde indicating that the disinflation process is playing out faster than previously expected. Despite the acceleration in the easing cycle, and with policymakers previously steering markets towards projection meetings, President Lagarde was noncommittal on the policy outcome of the December meeting and reaffirmed the ECB’s meeting-by-meeting and data dependent approach.
  • Although we had argued before the meeting that cutting policy rates on the back of a discrete number of new data points would pose a communication challenge for the ECB, Lagarde referred to a wide range of indicators that indicate inflation will return to target in a timely manner.
  • While domestic price pressures and robust wage growth have underpinned the ECB’s cautious easing cycle, economic growth is becoming more of a concern and is feeding into the inflation outlook.
  • That the ECB delivered a back-to-back cut despite the paucity of new data, and having repeatedly stressed the importance of the productivity-wage-profit channel as a fundamental driver of the inflation outlook, suggests that growth concerns have moved the meter for the GC. Nonetheless President Lagarde stressed that based on the current evidence, the eurozone was not heading towards a recession and that a soft-landing scenario was still the baseline.

FOR THE FULL PUBLICATION PLEASE USE THE FOLLOWING LINK:ECB Review October 2024.pdf