The ECB policy decision today is expected to be the most boring one out of all the central bank decisions we had this week.
STATEMENT
The ECB is expected to keep interest rates unchanged leaving the policy rate at 2.00%, which is right in the middle of their estimated neutral range (1.75%-2.25%). There shouldn't be any change in the statement and we won't get economic projections.
PRESS CONFERENCE
In the press conference, ECB President Lagarde is very unlikely to add anything new and reiterate that they are "in a good place", that they are "not pre-committing to any particular rate path" and that they will follow a "data-dependent and meeting-by-meeting approach".
RECENT COMMUNICATION
This has been repeated over and over again by many ECB members in the past weeks with the core message being that they are fine with the current policy setting and that they won't react to small or short-term deviations from their 2% inflation target. Some of them even added that the next move could be a rate cut or a rate hike, so they are really just monitoring the economic developments into 2026.
RECENT DATA
The economic data since the last meeting has been consistent with their projections. The core inflation rate ticked higher recently, while the unemployment rate held steady. We also got some very strong Eurozone PMIs last week. Therefore, the ECB should be happy in maintaining the status quo. The ECB has been certainly the most successful central bank in this cycle as they brought inflation back to target without an increase in the unemployment rate or a significant slowdown in the economy.
MARKET PRICING
- Today's cut: 1% probability
- December cut: 5% probability
- Total easing by the end of 2026: 12 bps (less than 50% probability)
