EconoFACTS

October 17, 2024 | 10:15

When Things Changed, the ECB Changed

Economist

Jennifer Lee

Senior Economist and Managing Director
Economics

Jennifer has been wi... (Read more)

Jennifer Lee

Senior Economist and Managing Director
Economics

Jennifer has been wi... (Read more)

As was widely anticipated (though not the case back in mid-September), the ECB cut its key lending rates 25 bps today. It was a unanimous decision to cut the deposit rate to 3.25%, the refi rate to 3.40%, and the marginal lending facility to 3.65%. It was also the third reduction this year: June and September prior to today, while taking a break in July. Justifying the easing (which was not in the cards at the last meeting in September) were the "recent downside surprises" in the economy. And, the downward revision to the September CPI figure (to 1.7%) gave this decision the extra oomph although, as President Lagarde pointed out, they are data dependent, not data-point dependent. They need an "array" of information and data, not just the Euro Area CPI. She did say, however, that the ECB, nor anyone else for that matter, was not anticipating the downwardly revised 1.7% inflation rate for September.

The Press Release was pretty similar to the last one but with some tweaks. Inflation is expected to rise in the near term but should hit target "in the course of next year", which is earlier than what it stated in September, which was "second half of next year". But the central bank is still cautious given "high" domestic inflation and wages that are "rising at an elevated pace". In any event, the usual "data-dependent" and "meeting-by-meeting" phrases were used, as they should be. And, the ECB is "not pre-committing to a particular rate path".

Today's cut leaned on the side of dovish, but not an extreme one given concerns about wage growth. It was an understandable move, given the spate of inflation-dampening figures, particularly from Germany, since the last meeting. And this goes to show, as President Lagarde put it, how they are data-dependent. When things change, their stance will change (JLee's words, not CLargarde's). But a soft-landing is still anticipated.... "We do not see a recession." I'm not sold on that.

Bottom Line: Steady as she goes, with no discussion of a 50 bp cut, despite what we've seen from some other central banks (U.S., New Zealand and maybe Canada next week). We continue to look for another cut at year end, then four next year. But we, too, are data dependent and will decide on a meeting-by-meeting basis. And in between meetings, too!

P.S. This (wave arms around) shows that the ECB is flexible and not stuck in its ways. That's a good thing!