The ECB cut for the sixth time today, taking rates down to 2.50% as the ‘disinflation process is well on track’ and ‘wage growth is moderating as expected’, but warned that rates are constraining the economy significantly less than before.
The slightly more hawkish stance has given Bund yields an extra push and lifted EUR/USD back above 1.08 as expectations have been pared back for 2025.
The big debate going in was whether or not policymakers would think it appropriate to drop the ‘restrictive’ label.
What we got was that rates are ‘becoming meaningfully less restrictive’. That sounds like an agnostic compromise from an increasingly fractured consensus within the ECB, and a split opinion on how much further there is to go.
With each step lower the hawkish resistance is naturally growing louder and that unanimous sense of direction is fading. 2.50% is clearly within the estimated range for neutral. This was the final cut on autopilot and further moves will no longer be clear-cut. That said, I think another move will come in April – big spending plans should begin to filter through in the next few years, but for now demand is still weak and there are plenty of headwinds from US trade policy on the way.
