La Française: ECB on hold
La Française: ECB on hold
The European Central Bank (ECB) should keep its key rates on hold at the July meeting after starting to lower borrowing costs in June. The statement should remain broadly unchanged.
This is what we expect:
- Governing Council (GC) members to maintain key interest rates; 3.75% for the deposit rate. Services inflation was sticky with an annual rate of 4.1% in June, which kept core inflation at 2.9%, and in addition, the labor market is strong. Therefore, the ECB will likely indicate that the bumpy path of the disinflation process toward 2% requires that decisions to cut policy rates be made carefully and gradually.
- President Christine Lagarde to repeat that monetary decisions will continue to be data dependent in order maintain maximum flexibility for future meetings.
- She should confirm that further rate cuts look likely if incoming data confirm that euro zone inflation will move to the 2% target by the end of 2025.
In summary, the July committee is likely to be a non-event. ECB President Christine Lagarde is not expected to provide any clear forward guidance as ECB macroeconomic projections will be reassessed in September. Therefore, this meeting should have a limited impact on financial markets.