FRANKFURT – The European Central Bank is widely expected to hold rates at current levels Thursday for its last decision of 2023, and analyst are leaning in to see if policymakers are ready to hint at a more dovish stance.
The bank’s announcement is to come at the end of a central banking extravaganza set to start Wednesday with the Fed decision, which is to be followed by rate pronouncements from the Swiss National Bank, Norway’s central bank, and the Bank of England.
An economists’ poll said ECB officials will vote to leave the overnight deposit rate at 4.0% and the main refinancing rate at 4.5%.
A hold on Thursday would be the second straight after October’s, which followed 10 consecutive rate increases.
The bank spelled out its reasoning for staying the course six weeks ago: “The governing council is determined to ensure that inflation returns to its 2% medium-term target in a timely manner. Based on its current assessment, the governing council considers that the key ECB interest rates are at levels that, maintained for a sufficiently long duration, will make a substantial contribution to this goal.”
Now, with inflation – and economic growth – continuing to weaken, further tightening seems highly unlikely.
But those hoping for a dovish pivot could be disappointed, according to Greg Fuzesi from J.P. Morgan. In a note, he said: “We do not think the ECB will take a strong view,” adding that officials will rather emphasise that the public lender is data dependent, a stance that has become a mantra for ECB President Christine Lagarde.
Mariano Cena from Barclays also suggested the bank will produce more of the same rhetoric, but he noted policymakers can’t ignore the latest data. “We expect the monetary policy statement to maintain its guidance that future decisions will ensure that policy remains sufficiently restrictive ‘for as long as necessary’, but to assess recent developments in underlying inflation as encouraging and the medium-term inflation outlook as more benign.”
Inflation continues to abate
Consumer price growth in the Eurozone weakened significantly last month, according to preliminary data from the EU statistics office Eurostat. Headline annual inflation dropped a half a percentage point to 2.4%, and the core rate declined even more, falling to 3.6% from 4.2%.
Weaker inflation and flagging growth may have emboldened those who want looser monetary policy, but the bank seems to have all its doves in a row, with some officials considered part of that flock noting it is too early to discuss rate cuts.
The Eurozone overnight swap market on Wednesday suggested traders are expecting a possible cut in March – a favourite amongst many analysts – with the reduction more likely coming in April.
Staff projections set for adjustment
Barclays’ Cena said he expects lower growth and inflation forecasts from the bank on Thursday. The 2023 GDP outlook is to lose two-tenths for a growth rate of 0.5% and four-tenths for 0.6% next year, with the 2025 estimate to hold at 1.5%.
Cena noted that forecasts for core inflation, a more preferred metric for rate-setters, are to be revised down to 2.6% in 2024 and 2.1% in 2025, reductions of three-tenths and one-tenth respectively
Analysts were of two minds about whether the bank is ready to discuss plans for bringing forward the end of reinvestments from its Pandemic Emergency Purchase Programme. Some predict a definitive announcement on Thursday, with others saying officials will wait until next year to provide details about the final steps.
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- Few changes expected to guidance
- Data dependency likely to remain official stance
- Staff could cut inflation, growth projections
- Rate decision due Thursday at 13:15 GMT / 14:15 CET
- Press conference set for 13:45 GMT / 14:45 CET
By Eric Culp
European Editor, LiveSquawk News
@EricCulpLS
13 December 2023 | 10:50 GMT
FRANKFURT – The European Central Bank is widely expected to hold rates at current levels Thursday for its last decision of 2023, and analyst are leaning in to see if policymakers are ready to hint at a more dovish stance.
The bank’s announcement is to come at the end of a central banking extravaganza set to start Wednesday with the Fed decision, which is to be followed by rate pronouncements from the Swiss National Bank, Norway’s central bank, and the Bank of England.
An economists’ poll said ECB officials will vote to leave the overnight deposit rate at 4.0% and the main refinancing rate at 4.5%.
A hold on Thursday would be the second straight after October’s, which followed 10 consecutive rate increases.
The bank spelled out its reasoning for staying the course six weeks ago: “The governing council is determined to ensure that inflation returns to its 2% medium-term target in a timely manner. Based on its current assessment, the governing council considers that the key ECB interest rates are at levels that, maintained for a sufficiently long duration, will make a substantial contribution to this goal.”
Now, with inflation – and economic growth – continuing to weaken, further tightening seems highly unlikely.
But those hoping for a dovish pivot could be disappointed, according to Greg Fuzesi from J.P. Morgan. In a note, he said: “We do not think the ECB will take a strong view,” adding that officials will rather emphasise that the public lender is data dependent, a stance that has become a mantra for ECB President Christine Lagarde.
Mariano Cena from Barclays also suggested the bank will produce more of the same rhetoric, but he noted policymakers can’t ignore the latest data. “We expect the monetary policy statement to maintain its guidance that future decisions will ensure that policy remains sufficiently restrictive ‘for as long as necessary’, but to assess recent developments in underlying inflation as encouraging and the medium-term inflation outlook as more benign.”
Inflation continues to abate
Consumer price growth in the Eurozone weakened significantly last month, according to preliminary data from the EU statistics office Eurostat. Headline annual inflation dropped a half a percentage point to 2.4%, and the core rate declined even more, falling to 3.6% from 4.2%.
Weaker inflation and flagging growth may have emboldened those who want looser monetary policy, but the bank seems to have all its doves in a row, with some officials considered part of that flock noting it is too early to discuss rate cuts.
The Eurozone overnight swap market on Wednesday suggested traders are expecting a possible cut in March – a favourite amongst many analysts – with the reduction more likely coming in April.
Staff projections set for adjustment
Barclays’ Cena said he expects lower growth and inflation forecasts from the bank on Thursday. The 2023 GDP outlook is to lose two-tenths for a growth rate of 0.5% and four-tenths for 0.6% next year, with the 2025 estimate to hold at 1.5%.
Cena noted that forecasts for core inflation, a more preferred metric for rate-setters, are to be revised down to 2.6% in 2024 and 2.1% in 2025, reductions of three-tenths and one-tenth respectively
Analysts were of two minds about whether the bank is ready to discuss plans for bringing forward the end of reinvestments from its Pandemic Emergency Purchase Programme. Some predict a definitive announcement on Thursday, with others saying officials will wait until next year to provide details about the final steps.