Archive

ECB Refi Rate 4.5% (consensus 4.5%) in Jan-24

• The ECB's decision to maintain key interest rates unchanged is influenced by the current stagnation in economic activity and a declining trend in inflation, with an expectation of gradual easing in line with the medium-term target.
• Future interest rate decisions will hinge on the continual assessment of inflation, economic data, and the effectiveness of monetary policy transmission, reflecting a data-dependent and responsive approach.
• The ECB remains vigilant about downside risks to economic growth and upside risks to inflation, emphasizing its readiness to adjust monetary policy instruments to ensure the return of inflation to the medium-term target and smooth policy transmission.

ECB Cuts Are Too Premature To Discuss

• The ECB not only maintained its policy rates as expected but almost repeated its December announcement verbatim. It is not falling in line behind market pricing.
• Discussion of rate cuts was considered premature. Low unemployment is recognised, as is the risk of excessive wage growth, so it needs to see more evidence before cutting.
• A first cut in June is probably the ECB’s working assumption. However, some global economic resilience amid higher neutral rates still delays our forecast to Q3.

By Philip Rush

Global Policy Isn't Squeezing That Tight

• Surprising strength was broadly experienced across the flash PMIs for January. Demand growth is rebounding rather than slowing, prolonging inflationary excess demand.
• Unemployment rates should rise with below-potential growth, but they broadly remain below their pre-pandemic levels and have mostly stopped falling rather than risen.
• The failure of tight labour markets to loosen suggests global policy isn’t set far above a neutral level. That should postpone cuts and limit their future extent.

By Philip Rush

Outlook 2024: Europe At A Crossroads

• Suggestions that June’s European Parliament elections are ‘make or break’ for the EU are probably overstated. But the outcome of what is arguably the second most consequential election of 2024 is still potentially pivotal for EU reform and enlargement prospects.

By Alastair Newton