What was expected to be the most boring ECB decision in some time duly delivered on those dull expectations, with policymakers keeping all settings on hold, maintaining the deposit rate steady at 3.75%, having delivered the first cut of the cycle, and first reduction since 2019, at the prior meeting in June.
The Governing Council’s forward guidance also provided few fireworks, being largely a ‘cut and paste’ of that delivered after the prior decision.
Policymakers, hence, repeated their desire to follow a ‘data-dependent’ and ‘meeting-by-meeting’ approach to future decisions, reiterating that said decisions will be based upon an assessment of the inflation outlook; underlying inflation dynamics; and, the strength of policy transmission.
Clearly, the first of these aspects hints strongly at a desire to further remove restriction at meetings which coincide with the release of updated staff macroeconomic projections. Hence, a 25bp cut at each of the September and December meetings remains the base case, and a policy path which money markets almost fully price.
In short, policymakers sought not to ‘rock the boat’ before the annual summer break, though remain primed to deliver the next cut of the cycle in 8 weeks’ time.
