ECB MINUTES REVIEW: Stale account of the Dec meeting offers little new to investors

Analysis details (13:54)

The account of the ECB’s December meeting in which it opted to stand pat on rates and bring forward the reduction of reinvestments under PEPP passed without much fanfare as the contents revealed little in the way of new information. In terms of the highlights, the decision to stand pat on rates was based on the judgement that “headline inflation was set to return to target only by the second half of 2025”. More specifically on the inflation outlook, caution was warranted as inflation would probably pick up in the near term. Furthermore, it was too early to be confident that the task had been accomplished. For the accompanying macro projections, it was noted that given the cut-off date for the forecasts, the outlook for economic activity in the staff projections seemed too optimistic and the strength of disinflation was likely to be underestimated. On the balance sheet (as alluded to by President Lagarde in the press conference), some members favoured an earlier end to full reinvestments than had been proposed, suggesting that tapering could start earlier and be more gradual, other members argued that full reinvestments should continue until the end of 2024. Overall, the accounts provide little useful in terms of signalling with markets more focused on economic data and ECB rhetoric. On the latter, President Lagarde has cautioned markets ahead of next week’s meeting that too optimistic markets do not help the ECB in its inflation fight. In terms of the timing of the ECB’s first rate cut, the President stated that it is likely that the ECB will cut rates by the summer.

18 Jan 2024 - 13:53- Fixed IncomeResearch Sheet- Source: Newsquawk