FRANKFURT – The European Central Bank held its key interest rates at levels set with last month’s 25-basis point reductions as analysts discussed expectations of like-sized cuts at the public lender's next meeting in September.
The decision to leave rates unchanged this month was widely expected. Hours before Thursday’s afternoon announcement, monetary policy maven Frederik Ducrozet from Pictet Asset Management wrote on social media network X: “Least important ECB meeting in a long time.”
Sticking to the borrowing costs unveiled last month also kept volatility away from monetary policy as the Continent looks forward to the August holiday period. “There's the expected gentle start to the European summer season,” ING’s Carsten Brzeski noted. “The ECB just announced its decision to keep all policy interest rates unchanged. The official policy statement did not provide any new clues on the central bank's future path but confirmed that it has for now given up on forward guidance.”
In parsing the bank’s statement on Thursday’s decision, Ducrozet cited what he called “two important observations”: May’s sticky core inflation was driven by one-off factors while most measures were either stable or edged down in June, and the impact of high wage growth buffered by profits as expected. Here, he noted the policy implication is that “the ECB is in no rush to ease again and won’t pre-commit to a particular rate path, but recent data points haven't materially changed the outlook. The ECB remains on track to cut rates at a quarterly pace.”
In the press conference following the announcement of the decision, ECB President Christine Lagarde seemed to be in little hurry to answer questions, talking at length about European fiscal policy and at one point briefly discussing some of the finer points of how synchronised swimming could be compared to guiding monetary policy when a journalist tabled an analogy that included her former sport. Some members of the Twitterati – now the X-filers? – felt obliged to criticise perceived bouts of circumlocution during Lagarde’s responses to various questions by journalists.
Maybe she was just tired of repeating “data dependent” and “We are not pre-committing to a particular rate path.”
No-direction September
Lagarde said risks to growth and inflation were on the wrong sides, namely down and up respectively. The economic outlook could be hampered by a weaker world economy or an escalation in trade tensions between major economies.
Following the ECB decision, gold, a global go-to safe haven, traded near its all-time high set Wednesday on expectations another central bank, the US Federal Reserve, will bring forward its rate cuts.
“We certainly observe that we have recovery,” Lagarde reported about Eurozone prospects, pointing to a mixed bag for economic performance, with services continuing to grow as manufacturing and investment slump.
Inflation is also sending mixed signals. Last month, the headline number closed in on the ECB target of 2.0% over the medium turn with a retreat to 2.5%. At the same time, the less volatile core rate remained at 2.9%.
Holding rates steady this month due to the stubbornness of consumer price growth was the prudent move, according to Clemens Fuest, president of Germany’s Ifo economics thinktank. “The decline in inflation in the Eurozone has recently stalled. It is therefore right to first wait and see and not cut interest rates again immediately. The next interest rate cut is likely to then follow in September, if wage growth gradually loses momentum and inflation continues to fall as a result.”
With wage and inflation date due before the next meeting, “September is wide open,” Lagarde told journalists.
Claus Vistesen from Pantheon Macro wrote on X that this kind of statement may have been to placate some members of the governing council “who were clearly miffed about the ‘pre-commitment’ to a June cut. ‘September is wide open’; given market pricing and consensus expectations, this is pretty hawkish from the ECB, though I still think they cut in September, in the end.”
Traders agreed, with the swap market showing an 80% likelihood of a September reduction and nearly the same odds for a decrease in December.
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- Decision for unchanged policy “unanimous”, ECB chief says
- Data dependency to continue
- Indicators due in August to guide officials
- Traders bet on September, December cuts
By Eric Culp
European Editor, LiveSquawk News
@EricCulpLS
18 July 2024 | 14:45 GMT
FRANKFURT – The European Central Bank held its key interest rates at levels set with last month’s 25-basis point reductions as analysts discussed expectations of like-sized cuts at the public lender's next meeting in September.
The decision to leave rates unchanged this month was widely expected. Hours before Thursday’s afternoon announcement, monetary policy maven Frederik Ducrozet from Pictet Asset Management wrote on social media network X: “Least important ECB meeting in a long time.”
Sticking to the borrowing costs unveiled last month also kept volatility away from monetary policy as the Continent looks forward to the August holiday period. “There's the expected gentle start to the European summer season,” ING’s Carsten Brzeski noted. “The ECB just announced its decision to keep all policy interest rates unchanged. The official policy statement did not provide any new clues on the central bank's future path but confirmed that it has for now given up on forward guidance.”
In parsing the bank’s statement on Thursday’s decision, Ducrozet cited what he called “two important observations”: May’s sticky core inflation was driven by one-off factors while most measures were either stable or edged down in June, and the impact of high wage growth buffered by profits as expected. Here, he noted the policy implication is that “the ECB is in no rush to ease again and won’t pre-commit to a particular rate path, but recent data points haven't materially changed the outlook. The ECB remains on track to cut rates at a quarterly pace.”
In the press conference following the announcement of the decision, ECB President Christine Lagarde seemed to be in little hurry to answer questions, talking at length about European fiscal policy and at one point briefly discussing some of the finer points of how synchronised swimming could be compared to guiding monetary policy when a journalist tabled an analogy that included her former sport. Some members of the Twitterati – now the X-filers? – felt obliged to criticise perceived bouts of circumlocution during Lagarde’s responses to various questions by journalists.
Maybe she was just tired of repeating “data dependent” and “We are not pre-committing to a particular rate path.”
No-direction September
Lagarde said risks to growth and inflation were on the wrong sides, namely down and up respectively. The economic outlook could be hampered by a weaker world economy or an escalation in trade tensions between major economies.
Following the ECB decision, gold, a global go-to safe haven, traded near its all-time high set Wednesday on expectations another central bank, the US Federal Reserve, will bring forward its rate cuts.
“We certainly observe that we have recovery,” Lagarde reported about Eurozone prospects, pointing to a mixed bag for economic performance, with services continuing to grow as manufacturing and investment slump.
Inflation is also sending mixed signals. Last month, the headline number closed in on the ECB target of 2.0% over the medium turn with a retreat to 2.5%. At the same time, the less volatile core rate remained at 2.9%.
Holding rates steady this month due to the stubbornness of consumer price growth was the prudent move, according to Clemens Fuest, president of Germany’s Ifo economics thinktank. “The decline in inflation in the Eurozone has recently stalled. It is therefore right to first wait and see and not cut interest rates again immediately. The next interest rate cut is likely to then follow in September, if wage growth gradually loses momentum and inflation continues to fall as a result.”
With wage and inflation date due before the next meeting, “September is wide open,” Lagarde told journalists.
Claus Vistesen from Pantheon Macro wrote on X that this kind of statement may have been to placate some members of the governing council “who were clearly miffed about the ‘pre-commitment’ to a June cut. ‘September is wide open’; given market pricing and consensus expectations, this is pretty hawkish from the ECB, though I still think they cut in September, in the end.”
Traders agreed, with the swap market showing an 80% likelihood of a September reduction and nearly the same odds for a decrease in December.
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