MNI ECB WATCH: Rates On Hold, No Commitment To Sept Cut

MNI (ROME) - The European Central Bank is expected to hold its deposit rate at 3.75% on Thursday and is likely to avoid an explicit pre-commitment to a second rate cut of the cycle in September. 

The ECB will continue to emphasise that its decisions are taken on a meeting-by-meeting and data-dependent basis, but, while some policymakers had earlier argued that June’s 25-basis-point cut was merely removing the so-called “insurance hike” of September 2023, their confidence in having commenced an easing cycle has increased. (See MNI SOURCES: Even ECB Hawks Confident Inflation On Track) 

Recent inflation data has been in line with the central bank’s March projections, were formulated on the assumption of one or two additional cuts in 2024. (See MNI INTERVIEW: ECB Has “Nice Path” To 2% Price Target – Kazaks)

Still services and domestic price pressures remain elevated, despite the improvement in headline data. Some policymakers point to encouraging signs in labour market and wages data, but others stress the risk of de-anchoring inflation expectations if the ECB fails to reach its 2% target at some point in the second half of 2025. (See MNI INTERVIEW: Vital ECB Returns Inflation To 2% By 2025 – Wunsch)

While politics and geopolitical uncertainty will continue to be considered the main risk to disinflation, and the most significant impediment to giving more concrete guidance, concerns over growth are also emerging within the Governing Council, especially among more dovish members. (See MNI SOURCES: Growth Rises Up List Of ECB's Concerns)

FISCAL OUTLOOK

In recent interviews with MNI, Bank of Portugal Mario Centeno (See MNI INTERVIEW: 'Good Prospects' For Further ECB Cuts – Centeno) said he saw further cuts in 2024 while Bank of Estonia Governor Madis Muller (See MNI INTERVIEW: Cut Not Guaranteed In September - ECB's Muller) was unsure of any easing in September.

 In recent remarks, Bundesbank President Joachim Nagel has stressed the ECB is not on autopilot despite the rising chances of new cuts, and Bank of France Governor Francois de Villeroy Galhau has raised growth concerns.

In the press conference, attention will focus on the extent to which President Christine Lagarde will steers towards a cut in September. She could point to upcoming data and the September projections as key elements for this decision.

She is also likely to face questions over the fiscal outlook, given election results in France and negotiations over a possible second term for European Commission President Ursula Von der Leyen.