NBP: First Cut Possible In May, Energy Price Outlook May Encourage Bolder Move
Apr-03 14:13
Governor Glapinski confirms that the MPC could deliver the first rate cut before the release of the July Inflation Report. If benign inflation trends are confirmed, the Council could take action as soon as in May or any subsequent month.
- The Governor's preference would be to start with a one-off adjustment as his personal view is that it is too early for a rate-cutting cycle - bue he could be outvoted by colleagues, some of whom think that the battle against inflation has already been won.
- The Governor could back or even table a motion to cut rates himself if benign data are repeated - if wage growth slows, headline inflation and core inflation decline, there are no external shocks, and a jump in electricity prices is prevented (which, for the record, is highly likely).
- Governor Glapinski flags his support for gradual, conservative action, signals scepticism towards major move in rates. However, he also says that if the government confirms that electricity prices won't increase, he could back an initial cut to the tune of 50bp, followed by another 50bp cut at the beginning of 2026.
- The Governor outlines an optimistic scenario where rates could reach 3.50% next year. Discussing the outlook for this year, he says that it would be good to see two 50bp moves "and then some" more easing, but everything hinges on data.
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ECB: 2025/26 GDP Growth Expected To Be Revised Lower In March Projection Round
Mar-04 14:11
Analysts expect the ECB to revise its 2025 and 2026 growth projections lower in the March forecast round, while technical assumptions are likely to push the 2025 headline projection a touch higher.
- The median of analyst estimates compiled by MNI expect the 2025 real GDP growth projection at 0.9%, two tenths below the 1.1% seen in the December round. This reflects carry-over from the weaker-than-expected Q4 flash GDP print (0.1% Q/Q vs 0.2% projected in December) and subdued activity signals at the start of 2025.
- Most analysts (with the exception of Deutsche Bank and Morgan Stanley) do not expect the ECB to incorporate potential tariff-related impacts into its projections.
- 2026 GDP is expected to be revised a tenth lower to 1.3%, but RBC instead expect an upgrade to 1.5% (mainly due to exchange rate technical assumptions).
- The cut-off date for the ECB’s technical assumptions (e.g. energy prices, exchange rate) is expected to be between Feb 7 – Feb 12. Analysts expect high gas prices and a weaker exchange rate to push the headline projection up a tenth to 2.2% (Morgan Stanley expect 2.4%). 2026 and 2027 headline projections are expected unchanged at 1.9% and 2.1% respectively.
- Analysts generally expect minimal changes to the core inflation projections through 2025-2027 (2025: 2.3%, 2026: 1.9%, 2027: 1.9$).
- Note: The March projections are compiled by ECB staff, while the December round was compiled by Eurosystem (i.e. National Central Bank) staff.
GERMANY: Bundesbank Publishes Debt Brake Reform Proposal
Mar-04 14:06
Bundesbank presents debt brake reform proposal - which would allow for extra spending through 2030 conditional on debt ratio:
- Specifically, under the proposal, "the federal and state governments would be able to spend up to a total of EUR 220 billion additionally financed by loans, provided that the debt ratio is below 60%. With a debt ratio of more than 60 percent, this framework would be limited to around 100 billion euros by 2030."
- The proposal "shows a stability-oriented path for higher government investment. It thus presents a concept that supports necessary measures to strengthen infrastructure and defence and at the same time ensures long-term sustainable public finances in line with European requirements. At the same time, it maintains its position that constitutionally secured debt brakes make an indispensable contribution to long-term sustainable public finances."
- A debt brake reform would likely be distinct to the currently discussed one-off defence funds in Germany.
- Link to full pdf here.
STIR: Heavy Red Dec'26/Green Dec'27 SOFR Spread Volume
Mar-04 14:05
- Over 60,000 SFRZ6/SFRZ7 spds at .075 last few minutes.
- Front Dec'25 contract leads volume at over 543k at the moment as front end of strip extends morning rally.
