MNI ECB Review: Firmly Dovish As Growth Outlook Sours

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Executive Summary

• The ECB cut its three key rates by 25bps, including the deposit rate to 2.25% as firmly expected.
• Any mention of “restrictive” was dropped from the statement but so was neutral, with President Lagarde stressing that it’s not an appropriate concept currently with huge shocks.
• Absent shocks, it would have been consistent with policy at the top of the 1.75-2.25% estimated range.
• The suite of communications made clear that downside growth risks have increased, driving a sizeable rally that started with the decision statement and increased through the press conference.
• The decision to cut 25bp was unanimous, with a number of governors who would have voted for a skip a few weeks ago coming around to another cut.
• June odds of a 25bp cut have climbed from ~70% to ~90%, whilst the terminal has fallen 11bp to 1.59%. The Euribor curve closes at fresh cycle lows for terminal implied yields.
• Our review of analysts ahead of the decision saw a median forecast of 1.75% for terminal, down from 2% with the March decision after various downgrades following US “Liberation Day” tariffs in early April.
• Real-time soft data will continue to grow in importance, starting with flash April PMIs on Wednesday.