ECB: Simkus Strikes A Dovish Tone Again, References 2028 Projections

Dovish headlines crossing from ECB's Simkus, but these are in line with previous comments (all Bloomberg):

• "*ECB’S SIMKUS: LIKE IDEA OF A RISK-MANAGEMENT CUT"
• "*ECB’S SIMKUS: INFLATION, GROWTH RISKS ARE MORE TO DOWNSIDE"
• "*SIMKUS: 2028 PRICE FORECAST IMPORTANT FOR NEXT ECB MOVE"
• "*ECB’S SIMKUS: IF 2028 INFLATION BELOW 2% GOAL, WE SHOULD ACT"
• "*ECB’S SIMKUS: FURTHER EURO APPRECIATION REMAINS POSSIBLE"

The 2028 inflation projections, as referenced by Simkus in the above, will be available at the ECB's December decision.

The ECB's projections currently pencil in HICP inflation at 1.9% in 2027, a tenth below the 2% target. That forecast is being pushed up because of the introduction of the EU Emissions Trading System 2 (ETS2). Without this policy, inflation would be even further below the 2% target.

• There remains uncertainty around the timing of ETS2 introduction. An MNI Policy Team sources piece noted last month that  there is an increasing likelihood that the European Parliament will dilute or delay its impact.
• For some more dovish ECB officials (like Simkus), a delay to ETS2 (and subsequent implied undershooting of the inflation target in 2027 and 2028), would be enough to support one more 25bp rate cut this cycle.
• As noted earlier, EUR STIR markets have become much more sympathetic to the idea of one more cut in recent weeks. OIS markets currently price ~21bps of easing through September 2026.