Instant View: ECB leaves rates unchanged; Lagarde says September is ‘wide open’
2024.07.18 10:22
LONDON (Reuters) – The European Central Bank kept interest rates unchanged on Thursday, and gave no hints as to what investors might expect at its next meeting, saying September was “wide open” and arguing inflation would stay above its target well into next year.
The euro dipped to $1.09208, from $1.0933 before Lagarde started speaking (). Government bond yields across the euro area pulled back slightly, while Europe’s broad share index extended gains modestly — last up 0.6% on the day.
ECB President Christine Lagarde said the monetary policy decision had been unanimous and reiterated the central bank’s determination to be dependent on data, rather than on any single data point.
“The question of September and what we do in September is wide open,” she said at the press conference.
COMMENTS:
SEEMA SHAH, CHIEF GLOBAL STRATEGIST, PRINCIPAL ASSET MANAGEMENT, LONDON:
“The ECB may have disappointed market observers who were hoping the central bank would lay out a clear policy path. But their refusal to pre-commit is a sound decision. Although inflation has come down significantly, there are some segments of price pressures that continue to look sticky and stubborn.
“Moreover, with the economy showing signs of a cyclical upturn, the euro area is not in dire need of aggressive, back-to-back rate cuts. The ECB has afforded itself the luxury of a more gradual, cautious approach to monetary easing.”
STEFAN GERLACH, CHIEF ECONOMIST, EFG BANK, ZURICH:
“After the communications failure at the June meeting – before which Governing Board members signalled that rates would be cut, only to have incoming data suggest that it would be better to leave policy unchanged – the press release avoided commenting on the outlook for interest rates. That was helpful.”
“The ECB is finding a balance between sticky inflation and concerns about wage increases, which speak against cuts, and a worsening economic outlook which calls for lower rates. Political uncertainty in France is also not helpful.”
“A weaker economy will slow inflation, setting the stage for lower rates. In central banking, there is safety in numbers. With the Fed likely to cut rates in September, the Governing Council will do so too. I expect another cut in December, or January.”
SAMUEL ADAMS, EUROPEAN ECONOMIST, UBS GLOBAL WEALTH MANAGEMENT, LONDON:
“Today’s lack of action does not mean, however, that the easing cycle has come to a halt. With signs that the economic recovery is already underway, the ECB can afford to accumulate more evidence that disinflation remains on track before lowering policy rates further.
“And while the recent inflation data is unlikely to have strengthened the Governing Council’s confidence much further, it remains consistent with a gradual easing of price pressures. This trend should allow the ECB to resume rate cuts in September and at a quarterly pace thereafter, in our view.
“Current returns on cash, while attractive, will not be around for much longer. We favour reducing holdings of cash and cash-like investments in favour of those that can offer more durable returns, such as a portfolio of quality bonds.”
KYLE CHAPMAN, FX MARKETS ANALYST, BALLINGER GROUP, LONDON:
“The pause itself surprised no-one, of course, with markets having priced it at a near certainty. Data in the inter-meeting period had not supported the case for further cuts at this stage, with the renewed momentum in services inflation a good justification for caution.
“This statement represents a dramatic shift from the heavy signalling prior to June, and the central theme now is non-commitment.”
“The picture will be much clearer by September, where a new set of projections should arm policymakers with enough confidence in the outlook to cut again.”
MARK WALL, CHIEF EUROPEAN ECONOMIST, DEUTSCHE BANK RESEARCH, LONDON:
“The ECB remains on course for a second rate cut in September. Despite some recent inflation data being less friendly, the ECB has excused some as one-offs and others as absorbed in profit margins. The ECB is taking comfort from the trends and looking through the noise, consistent with being ‘data dependent, not data-point dependent’.”
YAEL SELFIN, CHIEF ECONOMIST, KPMG, LONDON:
“Today’s statement was largely unchanged from last month, with the ECB striking a cautious tone and opting to limit any forward guidance. This will give the Governing Council flexibility in line with their data dependent approach ahead of the September meeting, in contrast to last month, when the ECB largely pre-committed to a cut.
“Limited data since the last meeting, alongside elevated short-term domestic inflationary pressures, made a pause today highly likely. Market pricing implied less than a 10% probability of a cut ahead of the meeting today. Nonetheless, the ECB will be wary of keeping rates in restrictive territory for too long, particularly with recent survey data signalling a slowdown in euro zone economic activity.”
MARCHEL ALEXANDROVICH, ECONOMIST, SALTMARSH ECONOMICS, LONDON:
“The ECB is being more cautions than expected. In April, it prepared the markets for a 25-bp cut at the June meeting.
“However, there was no such explicit guidance for another move in September in today’s announcement.”
“Let’s see if Lagarde keeps the door open to a move for a rate cut in September during the press conference. But this is clearly on the hawkish side.”
JAN VON GERICH, CHIEF MARKET STRATEGIST, NORDEA, HELSINKI:
“They (ECB policymakers) have been vague about what will happen going forward.
“Their base line is that there will be a cut in September and I think that’s what we’ll see if the data confirms the baseline they set out in June.
“I wouldn’t expect any big signals at the press conference as we have a lot of data ahead of September.”
ARNE PETIMEZAS, SENIOR ANALYST, AFS GROUP, AMSTERDAM
“As expected, the ECB simply repeated its assessment for inflation and growth from the June meeting. Furthermore, they still don’t pre-commit to further rate cuts. However, as we’ve seen with the U.S. CPI release, the writing is on the wall. Inflation is in retreat, and disinflation will resume in the euro zone too. The Fed will cut in September, and I think the ECB will cut too. While during the presser Lagarde is unlikely to guide for a September cut, I think the undertones will. As such, a cut is likely that month.”
