The ECB policy meeting decision later is going to be a dud. There's almost no doubts about that really. The central bank is not in a position to cut rates just yet and so, they can't really force such a communication in their policy statement in case inflation developments don't go according to plan in the months ahead. The key rhetoric now is better be safe than sorry.
And that is precisely what we should see in the monetary policy statement later in the day. The ECB should adhere to the following passage:
"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. The Governing Council’s future decisions will ensure that its policy rates will be set at sufficiently restrictive levels for as long as necessary."
Adding to that, the statement should reaffirm a more "data-dependent approach" as they continue to take stock of economic data over the next few months.
I mean, the ECB has made that quite clear since the start of the year. They have guided markets into pricing out rate cuts in March and April. And they have communicated that they are quite comfortable with traders pricing in the first rate cut for June at the moment.
That of course might change if we do get some surprises in the next two months. But as of today, they are happy with how things have panned out for the time being.
So, what is there to really talk about today?
I think that is exactly the point. The statement should offer nothing for markets to scrutinise. So, all the focus and attention will turn towards Lagarde's press conference instead.
The main thing that she wants and needs to achieve is to maintain the status quo.
As traders are looking to June for the first rate cut, that is where the ECB is also comfortable with considering recent economic developments. As such, there is no need to deviate from that.
That should make Lagarde's job relatively simple, no? Well, yes and no.
On the one hand, all she has to do is rehash everything that they have been saying over the last two months. However, if she accidentally let slip any commentary about earlier rate cuts, that will change the whole picture.
The latter might happen as she might feel the need to be more explicit about the ECB's motives in the months ahead. They have made clear that the next step is likely a rate cut. So, the onus is on Lagarde to build upon that but not too much.
If she does her job well, the events today should be a non-event for the euro and the rates market. And if we do get some outsized reaction otherwise, it would be clear that she definitely bottled the moment.
