MNI ECB Preview: Appetite For Restrictive Policy In Focus

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Executive Summary

• The ECB is fully expected to deliver a well-telegraphed 25bp hike this week, taking the deposit rate to 2.50% for the top end of what most on the GC are likely to consider neutral.
• We expect the statement to continue to push a data dependent and meeting-by-meeting approach where it’s not appropriate to pre-commit to a rate path.
• However, with markets pricing in two more rate hikes, roughly in December and then June 2027 (i.e. deposit rate to 3%), focus will likely be on clues as to the extent to which restrictive policy might be needed.
• New economic projections could also surprise, expected to show little material revisions to core HICP inflation (potentially a tenth lower for 2026 but more importantly unchanged for 2027/28) plus a small upward revision to real GDP growth.
• Analysts expect a technical assumption cut-off for the projections to be between Aug 14-21, limiting some of the latest push higher in energy prices but with crude oil likely still close to the baseline and natural gas potentially even higher than the adverse scenario. There will be new sensitivity analysis with this meeting.
• President Lagarde perceived the ECB’s reaction function to be “very well understood” by markets at the July conference – a scaling back of “very” could be seen in a dovish light considering hawkish pricing.