ECB review: The direction is clear

• Today, the ECB decided to leave policy rates unchanged as unanimously expected.
• A rate cut looks set to come in June, subject to further confidence on the three criteria that have guided ECB policy making through the past year.
• The next to no new policy signals left markets largely unchanged.

Limited new signals

The ECB meeting today was relatively uneventful in terms of policy signals and consequently didn’t leave a mark on the market. The key sentence of the policy statement was ‘If the Governing Council’s updated assessment of the inflation outlook, the dynamics of underlying inflation and the strength of monetary policy transmission were to further increase its confidence that inflation is converging to the target in a sustained manner, it would be appropriate to reduce the current level of monetary policy restriction.’ while still calling for its ‘data-dependent and meeting-by-meeting' approach to monetary policy setting and 'not pre-committing to a particular rate path’.

Given that the ECB meeting went basically as expected, see also our ECB Preview - An intention to cut, 5 April 2024, with the ECB guiding for a June rate cut subject to confirmation of the three factors that have guided the ECB’s monetary policy setting in the past year (namely the ‘updated assessment of the inflation outlook, the dynamics of underlying inflation and the strength of monetary policy transmission’), we continue to like our ECB rate call of a 25bp rate cut call in June, followed by further 25bp rate cuts once per quarter through the end of 2025. That said, and zooming into 2024, we see risks skewed to less than three rate cuts this year, due to the sticky domestic inflation. 

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