The ECB left interest rates unchangedand: respectively 4.25% on main refinancing operations, 4.50% on marginal refinancing operations and 3.75% on deposits. No surprises compared to analysts’ forecasts. For a possible second cut, after the one made at the beginning of June, the European Central Bank is waiting to analyze the large amount of data expected between now and September, starting with those on inflation and the labor market. There is no pre-established path in view of the next meeting, scheduled for September 12, every scenario remains open.
The Governing Council of the ECB says it is “determined to ensure the timely return of inflation to its medium-term objective of 2%”. The ECB specifies that it will “keep key interest rates at sufficiently restrictive levels for as long as necessary to achieve this aim”. To determine the appropriate level and duration of the restriction, Eurotower “will continue to follow a data-driven approach according to which decisions are made on a case-by-case basis at each meeting”. The 2% target, however, remains distant. The ECB board notes that “domestic price pressures remain high, services inflation is elevated and headline inflation is likely to remain above target for much of next year.”
“We will continue to follow a data-driven, meeting-by-meeting approach to determining the appropriate level of restrictive interest rate policies,” explains the ECB president, Christine Lagarde. Which however leaves some hope for the next meeting. Today the Board of Directors has “decided unanimously”. On the September moves, Lagarde announces that “the decision is open, it will depend on the data we receive, there is no predetermined path”. The governor concludes: “We will receive a lot of information from the data between now and September. That will be what we will look at to understand whether to stay in the current situation or do something else. It will be a pretty busy summer.”
Lagarde repeatedly reiterates that the ECB is determined to “ensure the timely return of inflation to its medium-term objective of 2%”. And it will keep “the key rates at sufficiently restrictive levels for as long as necessary to achieve this goal”.
Three key points will guide the course in the coming months, according to Lagarde. Fiscal policy “should aim to make the economy more productive and more competitive, and this would help potential growth and reduce price pressures.” A “fast and effective implementation of the Next Generation Eu”. And then the “steps forward towards the union of capital markets and the completion of the banking union, as well as the strengthening of the single market”. These are “key factors that would contribute to innovation and increased investments in the green and digital transition”.
A positive note compared to the last few months. «Household mortgage demand has increased for the first time since the beginning of 2022».
Regarding the Pandemic Emergency Purchase Programme (PEPP), the Eurosystem no longer reinvests all the principal repaid on maturing securities, reducing the portfolio by 7.5 billion euros per month, on average.The Governing Council intends to end reinvestments under this programme at the end of 2024.
“Today’s meeting proved to be interlocutory, in line with expectations. It is worth highlighting that the risks to growth are on the downside and that the wage increase is partly absorbed by companies through margin containment,” commented Antonio Cesarano, chief global strategist at Intermonte. “Therefore, the expectation of two further cuts by the ECB by the end of the year remains unchanged,” he continued. “Whether the next cut will arrive in September or will have to wait until October will also depend on the Fed’s decisions. The ECB meeting in September will be preceded by the Jackson Hole symposium, which could anticipate the Fed’s future moves.”
