MNI ECB Review: Bar To Cuts Pushed A Little Higher Again

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Executive Summary

• The ECB left its three key rates unchanged, including the deposit rate at 2.00%, as fully expected.
• The decision statement continued to push data-dependence and a meeting-by-meeting approach.
• Headline and core inflation was revised down 0.1pp in 2027 to 1.9% and 1.8% respectively. That sparked a modest dovish reaction, but the decision statement warned the inflation outlook was broadly unchanged.
• The press conference then sparked a hawkish reaction with growth risks deemed more balanced and the disinflationary process over.
• Policy is still deemed to be in a good place and the ECB won’t react to small deviations from inflation target projections.
• The bar to rate cuts appears to have been lifted a little higher. Nevertheless, with inflation projections technically undershooting, we still see near-term risk poised to further cuts rather than an early start to a hiking cycle.
• ECB sources from Bloomberg suggested further shocks are needed to see rate cuts whilst Reuters sources said the debate on a rate cut was not over just yet with October too soon but December eyed.
• ECB-dated OIS points to just 12bp of cumulative cuts out to July 2026.