MNI ECB WATCH: On Hold, But September Cut Still In Play

MNI (LONDON) - The European Central Bank left monetary policy unchanged Thursday and gave no firm indication on a future rate path, reaffirming that policy decisions would remain data dependent and be made on a meeting-by-meeting basis.

The deposit rate was held at 3.75%, the refi rate at 4.25% and the marginal lending rate at 4.5%. All three rates were reduced by 25bps at the June meeting, the first ECB rate cut since 2019, in line with expectations. (See MNI ECB WATCH: Rates On Hold, No Commitment To Sept Cut). 

At the regular post-meeting briefing, President Christine Lagarde said policymakers were determined to remain data-dependent, although she added that further data and another round of projections confirming the disinlationary trend could further boost the GC's confidence ahead of the September meeting.

Many policymakers have indicated that September would be a more likely meeting than July to discuss the next rate move, likely to be another cut, as updated projections would give a clearer view of the outlook. (See MNI SOURCES: Even ECB Hawks Confident Inflation On Track)

DATA BROADLY SUPPORTIVE

There was little new in the ECB's policy statement, with Lagarde saying the incoming information broadly supported the ECB's "previous assessment of the medium-term inflation outlook". 

"While some measures of underlying inflation ticked up in May owing to one-off factors, most measures were either stable or edged down in June," she noted.

Lagarde said monetary policy is keeping financing conditions restrictive, but noted that "domestic price pressures are still high, services inflation is elevated and headline inflation is likely to remain above our target well into next year".

With little on the outlook for rates, one new point emerged from the press conference, when Lagarde was quizzed by MNI on the upcoming assessment of the ECB's 2021 stragegy review.

REVIEW

Noting the assessment could start "soon", Lagarde said the 2% symmetrical inflation target would not be a subject of discussion or change.

"The current symmetrical inflation target will not be discussed. It may be by some future ECB President, but not on my watch," she said.

Lagarde also stated that the idea of introducing Fed-style dot plots, an idea floated by Isabel Schabel in Washington earlier this year, would not be discussed in the review. (See MNI POLICY: Fed To Consider Shift To Inflation Target Band)