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MNI ECB Review - September 2024: Back In December

The ECB cut the deposit rate by 25bp in September and given the short time until the next meeting in October, the next cut will likely be in December.

Central Bank ReviewCentral Bank ReportsMarketsECB - Review

Back In December

The ECB cut the deposit rate by 25bp as expected and narrowed the policy rate corridor as indicated back in March. President Lagarde reiterated the data-dependent and meeting-by-meeting approach, as well as explicitly stating that despite the obvious downward trajectory there is no predetermined policy rate path. As we stated in our preview of the meeting, given that inflation is now much closer to target but with some pieces of the puzzle still missing (particularly with respect to domestic price pressures), there is little to be gained from pre-committing to specific policy decisions, but much to be gained from retaining some flexibility and optionality. Despite recognising weaker economic activity and highlighting the recent moderation in wage growth, the tone of the press conference still reflected a challenging ‘last mile’ and in that sense felt a touch hawkish on inflation. Ultimately, however, we feel that this just affirms that October is off the table, but that growth and wage dynamics will likely provide sufficient cover for another cut in December. More broadly, absent a material downside shock, the ECB’s cautious approach in the face of uncertainty augurs for a quarterly pace of policy rate cutting.

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Back In December

The ECB cut the deposit rate by 25bp as expected and narrowed the policy rate corridor as indicated back in March. President Lagarde reiterated the data-dependent and meeting-by-meeting approach, as well as explicitly stating that despite the obvious downward trajectory there is no predetermined policy rate path. As we stated in our preview of the meeting, given that inflation is now much closer to target but with some pieces of the puzzle still missing (particularly with respect to domestic price pressures), there is little to be gained from pre-committing to specific policy decisions, but much to be gained from retaining some flexibility and optionality. Despite recognising weaker economic activity and highlighting the recent moderation in wage growth, the tone of the press conference still reflected a challenging ‘last mile’ and in that sense felt a touch hawkish on inflation. Ultimately, however, we feel that this just affirms that October is off the table, but that growth and wage dynamics will likely provide sufficient cover for another cut in December. More broadly, absent a material downside shock, the ECB’s cautious approach in the face of uncertainty augurs for a quarterly pace of policy rate cutting.

Keep reading...Show less