ECB REVIEW: ECB cuts rates as expected but keeps quiet on the timing of the next move

Analysis details (15:20)

As expected, the ECB cut rates for the first time since September 2019, lowering the deposit rate by 25bps to 3.75%. Within the accompanying statement, the main highlight was that the "Governing Council is not pre-committing to a particular rate path". Furthermore, the ECB reiterated its pledge to "keep policy rates sufficiently restrictive for as long as necessary". With regards to its assessment of the economy, from a qualitative perspective, the statement read that "despite the progress over recent quarters, domestic price pressures remain strong as wage growth is elevated, and inflation is likely to stay above target well into next year". For the accompanying macro projections, 2024 and 2025 headline and core inflation forecasts were raised, with the 2026 headline print held at 1.9%. From a growth perspective, the 2024 GDP forecast was raised by more than expected, and 2025 was lowered as expected. At the follow-up press conference, President Lagarde remarked that she would not say that the ECB is in a 'dialling back phase', but there is a strong likelihood that the ECB is dialling back. With regards to the unanimity of the decision, Lagarde said that all but one governor backed the decision to lower rates; it was later revealed by Reuters that Austria's Holzmann was the lone dissenter, voting for an unchanged policy rate on account of the increase in inflation projections. Elsewhere, Lagarde made the point that the ECB is far from the neutral rate, and refused to commit to deciding on rates only on projection round meetings, but noted that policymakers do have more data available at these meetings. Overall, market pricing has moved in a slightly more hawkish direction given the lack of an explicit endorsement for another near-term rate cut, with October now no longer fully priced for a rate reduction, and the probabilities around a December cut are a coin-flip (vs. circa 56% pre-release). 

06 Jun 2024 - 15:19- Fixed IncomeData- Source: Newsquawk