PRIMER: Account of ECB's 14th December meeting due to be released at 12:30GMT/07:30EST

Analysis details (13:02)

As expected, the ECB opted to stand pat on rates for a second consecutive meeting with the main policy adjustment coming via the balance sheet. The Governing Council decided that reinvestments under PEPP will run at current levels during H1 (vs. previous guidance of “at least until the end of 2024”), after which, it intends to reduce the PEPP portfolio by EUR 7.5bln per month on average. Elsewhere, the statement reiterated that “policy rates will be set at sufficiently restrictive levels for as long as necessary.” However, the policy statement omitted policymaker’s prior judgement that “inflation is still expected to stay too high for too long.” The accompanying macro projections saw 2023 inflation downgraded to 5.4% Y/Y from 5.6%, 2024 cut to 2.7% Y/Y from 3.2%, and 2025 held at 1.9% Y/Y. Note, the forecasts drew criticism in some quarters given the November 23rd cut-off date, which prompted suggestions that the 2024 core inflation projection of 2.7% was too high given recent economic developments. On the growth front, 2023 and 2024 projections were cut, with this year’s GDP growth view at just 0.8%, and the 2025 forecast held steady at 1.5%. At her follow-up press conference, when questioned on the Bank’s plans for rate cuts in 2024, President Lagarde stated that the decisions will be data dependent, not time dependent, adding that policymakers will not lower their guard. Furthermore, Lagarde was clear in stating that the Governing Council did not discuss rate cuts, with policy set for a “plateau of hold.” Lagarde also noted that the Bank will need to see more evidence on wage growth given that current data shows that wages were “not declining”. When questioned on the balance sheet, the President noted that there were differing views on PEPP, whereby some Governors wanted different tapering, earlier or later. As always, given the lag between the meeting and the publication of the account, the release will be seen as stale in some quarters. Additionally, given that rates are not set to be lowered in the immediate future, their insight into the 2024 rate path will likely be limited.

18 Jan 2024 - 07:30- Research Sheet- Source: Newsquawk