ECB officials have generally argued that the incoming data broadly confirms the baseline scenario and that policy rates can be lowered further if the disinflation process remains on track, analyst at the bank said, in a note dated Aug. 30.
A number of members, moreover, cited the recent cooling in wage growth as good news and some argued that rising downside risks to the growth outlook have reinforced the case for easing policy restrictiveness.
“Taken together, we think the recent commentary points to a modest shift in signalling from 1-2 additional cuts this year before the summer break to 2 more cuts now, with little appetite for cutting policy rates at a faster pace at this stage,” Goldman Sachs said.
Forward-looking indicators and comments from some ECB officials suggest a small downgrade to near-term growth, which would take 2024 and 2025 growth down -0.1pp each to 0.8% and 1.3%, respectively.
“We look for core inflation to be revised up +0.1pp to 2.9% in 2024 and +01pp to 2.3% in 2025 given a stronger recent run-rate, but remain unchanged 2026,” Goldman added. “Lower oil prices and a stronger euro are likely to be offset by lower rates and higher gas prices, which would leave the projections for headline inflation unchanged in 2024, 2025, and 2026.”
With all this in mind, “we continue to expect the Governing Council to deliver the widely anticipated second 25bp cut on September 12 but look for limited changes to its communication,” Goldman said.
“In particular, we expect the Council to maintain its data-dependent and meeting-by-meeting approach without explicit guidance about the future policy path. We maintain our forecast for quarterly cuts to a terminal rate of 2.25% but see risks skewed towards a sequential pace, especially in 2025H1.”
Source: Economy - investing.com
