ECB REVIEW: ECB takes another step in its easing cycle but keeps mum on October

As expected, the ECB opted to cut the deposit rate by 25bps from 3.75% to 3.5% whilst also lowering the main refi and marginal lending rates by 60bps (as previously announced in March). In the policy statement, the ECB reiterated that it will continue to follow a meeting-by-meeting approach and remain in data dependent mode. Furthermore, policy rates will be kept sufficiently restrictive for as long as necessary and the ECB will not pre-commit to a specific policy path. In the accompanying macro projections, headline inflation forecasts for 2024-26 were left unchanged; 2026 remained below target at 1.9%. On a core basis, 2024 and 2025 forecasts were upgraded by 10bps on account of stubborn services inflation. From a growth perspective, 2024-2026 projections were lowered by 10bps each “owing to a weaker contribution from domestic demand over the next few quarters”. At the follow-up press conference, Lagarde noted that today’s decision to cut the DFR by 25bps was “unanimous”. On the inflation path, the President noted that September inflation is likely to see a downtick on account of base effects before rising again in Q4. Despite attempts by journalists to extract information about easing intentions for the October meeting, Lagarde stated she would neither commit to a position or comment on how close the ECB is to R*. Elsewhere, the President noted that the GC is going to be attentive to the risks of undershooting inflation. Overall, pricing has moved in a slightly more hawkish direction with around 7bps of easing seen in October vs. around 9bps pre-release with a total of 38bps of easing seen by year-end vs. 39bps pre-release. However, as we mentioned in our preview, those looking for any overt clues over the ECB’s easing plans for October were always likely to be disappointed given the Bank’s strict data-dependent credentials. As such, it remains a case of seeing how inflation and growth dynamics play out in the coming weeks. 

12 Sep 2024 - 15:00- Fixed IncomeResearch Sheet- Source: Newsquawk