- Prior decision
- Main refinancing rate 4.50% vs 4.50% expected
- Prior 4.50%
- Deposit facility rate 4.00% vs 4.00% expected
- Prior 4.00%
- Marginal lending facility 4.75%
- Prior 4.75%
- Most measures of underlying inflation are easing, wage growth is gradually moderating
- Not pre-committed to a particular rate path
- Will continue to follow a data-dependent approach and meeting-by-meeting approach
- Inflation has continued to fall, led by lower food and goods price inflation
- Domestic price pressure are strong and are keeping services price inflation high
- Intends to discontinue reinvesting PEPP at end of 2024
This is the first explicit mention of cuts in a statement:
The Governing Council’s future decisions will ensure that its policy rates will stay sufficiently restrictive for as long as necessary. If the Governing Council’s updated assessment of the inflation outlook, the dynamics of underlying inflation and the strength of monetary policy transmission were to further increase its confidence that inflation is converging to the target in a sustained manner, it would be appropriate to reduce the current level of monetary policy restriction.
Ahead of the decision, the market was pricing in just an 8% chance of a cut. However that rises to 74% in June, which is the key question. There were 75 basis points in easing priced in for 2024.
Pricing shifted fractionally hawkishly afterwards. Lagard's press conference starts at 8:45 am ET (1245 GMT, 1445 in Frankfurt).
The new statement is more specific and conditional. It mentions that if the Governing Council becomes more confident that inflation is converging to the target in a sustained manner, it might consider reducing the level of monetary policy restriction. That's not the strong signal that many in the market were looking for but it certainly doesn't rule out a move in June.
The new statement also contains more detailed language about the council's approach to future policy decisions, stating that it will follow a "data-dependent and meeting-by-meeting approach" and explicitly mentions not pre-committing to a specific rate path.
The message I think the ECB is trying to send is that it will cut so long as the next round of inflation data permits. The next meeting is June 6.
EUR/USD has fallen about 8 pips on the decision but EUR/CHF has dropped.
