MNI ECB WATCH: ECB Cuts 25, Keeps Meeting-By-Meeting Approach

The European Central Bank cut interest rates by 25 basis points for a second consecutive meeting on Thursday, saying the disinflationary process was “well on track” and sticking to its meeting-by-meeting approach.

“We are going to continue doing exactly the same thing,” ECB president Christine Lagarde told a news conference, adding that the decision to cut was unanimous given lower-than-expected inflation data and a weaker economy. (See MNI SOURCES: Chances Of October ECB Cut At Least 50-50)

“I'm not sure we anticipated that 1.7%, but nor did anyone else, for that matter,” she said, referring to downwardly-revised inflation data for September, saying that the eurozone was on target to sustainably hit its 2% inflation target in 2025.

There is still some balance in the risk for undershooting or overshooting the target, but there is “probably more downside risk,” she said.

"Have we broken the neck of inflation? Not yet. Are we in the process of breaking that neck? Yes,” she said.

Risks to economic growth are tilted to the downside, Lagarde said, adding “We are concerned about growth to the extent that it has an impact on inflation.”

There are also two-way risks to inflation, with higher-than-expected wages a possible factor, as well as geopolitical tensions in the Middle East which could impact prices to upside or downside.

DATA DEPENDENT, NO RECESSION

December’s decision will depend incoming on data and updated economic projections, she said. (See MNI SOURCES: ECB To Keep Meeting-By-Meeting Even After Oct Cut)

"I did not open the door to anything. At each and every meeting we will look at the data,” Lagarde said, adding that the decision to cut in October was a “perfect example of how to be data dependent.”

The economy is not picking up as strongly as the ECB had expected but it does not anticipate a recession and still regards a soft landing as the most likely scenario.

There is "no doubt" that interest rates are still restrictive, and that the ECB still has margin to cut, Lagarde said.

Asked about the implications for the ECB of U.S. elections and the potential impact of a victory by Donald Trump, Lagarde replied that any increase in tariffs would have a downside impact on the eurozone economy.