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Q&A Begins: Strength Of Projections Helped Motivate Cut

ECB

Q: Did you pre-commit too early? Is market pricing appropriate?

A1: We decided to cut and did so because overall our confidence in the path ahead has been increasing over the last months. These things do not happen in a vacuum.

  • Previously were 2 phases of monpol. Tightened by 450bp between Jul22-Sep23. Then moved into phase of holding from Sep23-today. If we look back, during each of those phases inflation was divided by half.
  • Second element: The reliability and strength of projections - particularly relevant was the Q4-25 projections there is a variability of 0.1ppt.
  • I will invariably tell you "We shall be data dependent and we shall decide meeting by meeting." To say that is not enough. How do we analyze the data?
  • We look at it under 3 criteria: inflation outlook, underlying inflation and transmission of monpol. We need to have those data and enough of those data to make a relevant analysis, and that took us to this decision.
A2: "Markets do what they have to do and we do what we have to do."
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