Resend: MNI ECB Review - July 2024: September Cut Likely

The ECB left policy unchanged, explicitly avoided pre-committing to a September cut, and offered no material new insights. This was as expected. Before the meeting we argued that with inflation now at more comfortable levels, though still above target, and given uncertainty over inflation persistence, the ECB was under no immediate pressure to cut rates, but would maintain that the direction of travel is still lower. During the press conference President Lagarde indicated that growth risks were tilted to the downside, while risks to inflation were to upside, leaving the overall assessment relatively balanced. However, this broadly neutral assessment translates into a mildly dovish bias for monetary policy. Indeed, with economic and inflation developments unfolding roughly in line with expectations, the ECB can maintain its easing course.

Lingering uncertainty over inflation persistence will ensure a cautious ‘stop-go’ monetary easing cycle, with the pace only picking up when there is more conclusive evidence of inflation returning sustainably to target, or in the event of economic activity and inflation data suddenly decelerating below expectations. For the time being, quarterly cuts are the most likely scenario and we would expect a 25bp move in September.