Wake me up when September ends comes. That is going to be what sums up the ECB policy decision tomorrow. With the deposit rate now at 2.00%, the central bank is comfortable with leaving it at just that. Policymakers had previously communicated that this is within the neutral range estimates, seen between 1.75% to 2.25%.
All things considered, the ECB will continue with the same language and communique from before. And that is trying to buy as much flexibility as possible. That means expect to hear the same words on being data dependent and approaching policy on a meeting-by-meeting basis.
That especially since they will have to still watch out for how the EU and US are going to work things out on trade by 1 August.
So, the question is will the ECB do anything or tweak any wordings to set something up for September? I highly doubt they would. The majority of analysts are anticipating the ECB to follow up this week’s meeting with a rate cut in September. However, market pricing is less than convincing. As things stand, money markets are only pricing in ~44% odds of a rate cut at the end of Q3.
As things stand, a lot will ride on trade developments and economic data in the months ahead. The baseline expectation is that the conditions are expected to soften further alongside wage growth, allowing for the ECB to cut again in September and likely December.
There are mixed feelings about that though with the ECB putting up a more confident front in expecting support from fiscal policies as well. So, it’s a case of having to wait and see.
In terms of market pricing, traders are only seeing ~26 bps of rate cuts by year-end. So, therein lies the risks for the euro to any further repricing on more rate cuts by the end of the year.
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This article was written by Justin Low at investinglive.com.
