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🏦🇪🇺Cable FX Macro Weekly Note: ECB October Meeting

*AS SEEN IN RISK IN THE WEEK REPORT 10/11/24, GET ACCESS NOW cablefxm.co.uk


Back in September, the ECB decided to cut rates, as expected. The main refi rate was slashed by 60bps to 3.65%, the marginal lending facility and the deposit facility now stand at 3.90% and 3.50%, respectively. The staff reduced all growth forecasts through 2026, this year's output is seen rising 0.8% and the next at 1.3%. Over the presser, Lagarde mentioned that eurozone growth risks were tilted to the downside, however, she kept a tone of flexibility when it came to the rate outlook. This was a bit surprising given the fact that growth was seen softer and inflation is running close to target. The rhetoric would change, even ECB sources said they didn't rule out a rate cut for October. Activity and jobs data support easier policy, while the latest flash CPI reading slipped below 2.0% for the first time since 2021.

Natixis analysts noted both hard data and business surveys showing growth momentum disappointing, while forward data from the PMIs do not point to an immediate rebound. Natixis sees the ECB cutting rates by 25bps in October as the board increases its confidence on the inflation outlook, the desk points out consistent wage growth moderation as a condition for the central bank to reduce rates every meeting. They pencil steady 25bps rate cuts at each meeting until the deposit rate reaches 2.0% in June 2025. This is consistent with the <IRP> latest reading, the market is pricing 100bps of easing into March 2025, that translates to 25bps rate cuts on a meeting-by-meeting basis



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