ECB’s January monetary policy account leaves many doors open. Bur economists at Nordea continue to expect the first rate cut to take place in June.

Preferring to cut late than early

The monetary policy account from the ECB’s January meeting illustrated that while a lot of progress was being made towards achieving the inflation target on a durable manner, risk management considerations still supported waiting with the first cut. Nevertheless, the account included an increasing amount of soft comments, suggesting a growing number of Governing Council members are moving towards supporting cuts, even if the time for lower interest rates is not yet here. 

In general, the account does not change our baseline view of the first cut taking place in June, followed by quarterly 25 bps moves. However, the softer voices in the account underline that risks remain tilted towards an April move rather than the ECB waiting longer for the first cut, especially if the March staff forecasts see further downward revisions to the inflation path, which looks likely. However, as today’s rise in the PMIs, especially the further increase in the employment and output price components, illustrate, upside inflation risks are not fully gone either.