EU, Major Event

ECB Interest Rate Prep

Sentiment:

ING: This Thursday’s ECB decision will almost certainly be a 25bp rate cut. Governing Council members have given very strong hints that rates would be lowered again in their latest comments, most recently in Davos. Our baseline view is that ECB’s Lagarde will broadly repeat December’s communication and her Davos forward guidance. That includes reiterating that rates will remain in restrictive territory and while not pre-committing to a specific easing path, sticky December inflation should not prevent the policy message from staying dovish, signalling further gradual easing this year.

BofA: We expect a 25bps rate cut by the ECB this week and a reiteration of the guidance from December. It should be a non-event for markets, fully priced and with January inflation only to be released next week. Based on recent ECB speakers, the next two cuts seem to be consensual now, but the path thereafter not.

CACIB: A few more months remain before the ECB are finished with their own easing cycle according to our forecast.

JPMorgan: The ECB is very likely to cut the deposit rate by 25bps to 2.75%. This would leave the policy rate above Lagarde’s range for neutral of 1.75%-2.5% and should therefore be a relatively straightforward decision. In terms of communication, we expect the ECB to stick to its guidance of data dependence, a meeting- by-meeting approach and no pre-commitment on the exact rate path.


Money Market Pricing & Comments:

January 10th 2025
[08:37 ET] Traders pare ECB easing bets and see just three cuts by June.
[08:41 ET] Money markets price in an ECB deposit rate at 2.2% in July from 2.15% before the US data

January 24th 2025
[03:18 ET] Traders Hold ECB bets steady after French PMI; seeing 94bps in 2025
[03:35 ET] Traders pare 2025 ECB rate cut bets after German PMI, seeing 92bps

January 21st 2025
[08:45 ET] ECB’s Nagel: The ECB on a good path to reach 2% target in mid-2025.