abrdn: Alle ogen gericht op 'forward guidance' van ECB

abrdn: Alle ogen gericht op 'forward guidance' van ECB

January 19, 2024

Monetary policy ECB
europese centrale bank (ECB).png

Felix Feather, Quantitative Economic Analyst at abrdn, comments on next Thursday's ECB meeting.

It is a perennial paradox of monetary policy: the more widely expected a rate change is, the less necessary it becomes.

Market pricing implies investors have adopted our long-standing expectation of a significant cutting cycle this year, thereby loosening financial conditions. This loosening increases the risk of a rebound in inflation, right after a period of remarkable progress in the ECB’s inflation battle. And with conflict in the Middle East disrupting supply chains, policymakers are growing concerned that the highly disinflationary goods cycle might be on the cusp of a turnaround.

With the ECB expected to stay put this time around, all eyes will be on its forward guidance.

We expect this to be – whilst noncommittal – amenable to the market’s expectation for the next move in the policy rate to be downward. But don’t expect a full endorsement of market expectations: the ECB will almost certainly hint that it feels the market’s expectations of at least five rate cuts this year are overexuberant.

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