AXA IM: No hard ECB decision this week, next 25bps cut in September

Jul 17, 2024

There is a chance that the ECB will remove monetary restriction quickly enough so that a recession phase could be avoided.

AXA IM: No hard ECB decision this week, next 25bps cut in September

There is a chance that the ECB will remove monetary restriction quickly enough so that a recession phase could be avoided.

‘We do not expect any hard decision this week, but the ECB Governing Council meeting should be the occasion to make it clearer that the June cut was only the start of a process, and we expect the next 25bps cut coming in September,’ AXA IM predicts today.

‘Paradoxically, the questioning of the leading role of monetary policy is taking place while central banks are on the cusp of being able to declare victory on inflation at a manageable cost to the real economy. Indeed, the ECB started to cut interest rates in June before obvious signals of recession started accumulating.’ ‘We think it is going to be tight, but there is indeed a chance that the ECB will remove monetary restriction quickly enough so that a recession phase could be avoided. We are not expecting an emergency cut at this week’s meeting – we think there would have been clear signs to this effect at the annual conference in Sintra.’ ‘For this week, there is less than 1 basis point of a cut priced in.’

‘The preference of the Governing Council – at least for now – seems to be to timing the rate cuts with the release of new forecasts, and the next one comes in September.’ ‘The market is now pricing an 87% probability of a cut then, and we would put it even higher. True, disinflation is on a plateau, but the surveys converge to paint a sufficiently tame picture of underlying price pressure for the ECB not to wait too long. In June, Christine Lagarde has strenuously avoided embarking on a discussion of what would be a ‘restriction removal trajectory’. We would expect more openness this week, largely validating current market pricing.’