MNI SOURCES: ECB Likely To Adjust Or Remove 'Restrictive'

The European Central Bank is likely to adjust its policy statement on Thursday after delivering another 25-basis-point cut in the deposit rate to 2.25%, potentially removing the reference to a "restrictive" stance or modifying its wording to emphasise that rates are at the upper end of its range of estimates of neutral, Eurosystem sources told MNI.

“Perhaps … something like ’we must now assess carefully if and by how much, monetary policy remains restrictive,’” a source said, offering an example of how the revised language might read.

Such a shift would not necessarily provoke strong debate within the Governing Council, as the ongoing disinflation trend is deemed robust enough, sources said. March’s statement said “monetary policy is becoming meaningfully less restrictive”, and policymakers now anticipate a discussion at the June meeting or shortly afterwards about whether there should be a shift to a more supportive stance, and even potentially entering accommodative territory. (See MNI SOURCES: ECB Likely To Tweak Language, Keep "Restrictive")

“If not actually removed, the language is likely to moderate to a degree from last month's, reflecting another cut,” another official said. “We will certainly underline the data-dependent, meeting-by-meeting approach, magnified by the exceptional uncertainties at the moment.”

NEUTRAL YESTERDAY'S DEBATE

But, the official added, the debate over neutral may be “last month's cause de jour.” (See MNI POLICY: BOE, ECB Probe Whether QT Can Lower R-Star)

“I don't know whether it comes this month, but there will be a debate about whether, when and by how much policy will need to become accommodative,” the source said.

Recent data and the momentum behind disinflation are considered sufficient to counter any fear that altering the language could be interpreted as “forward guidance by stealth”—a concern previously voiced by more hawkish members of the Council who worried that markets might view it as a move towards easing, a source said.

Hawkish voices within the ECB maintain that ongoing geopolitical tensions and newly introduced tariffs require keeping monetary policy slightly tighter, citing the risk of renewed inflationary pressures stemming from expansive fiscal programmes, particularly in defence, and trade levies, another source said.

“What some hawkish members of the GovCo say is the ECB has a clear mandate, which is price stability – not stimulating the economy. There is a danger that inflation could come back due to a combination of huge fiscal spending programmes and tariffs,” he added.

An ECB spokesperson declined to comment.