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

**As seen in Risk In The Week report 10/20/23, subscribe at cablefxm.co.uk/reports

In September, the ECB lifted benchmark rates by 25bps, this left the main refi rate and the deposit facility at 4.5% and 4.0%, respectively. Heading into the September meeting, the board saw consumer inflation expectations rising while activity indicators in the form of PMIs contracted further. Economic slowdown led to the EU Commission revising both 2023 and 2024 GDP growth forecasts to the downside. Before the ECB released their monetary policy decision, a Reuters article noted that staff was set to leave inflation forecasts above 3% for next year, this was received as a ticket for further tightening from the central bank. However, once the decision was released, we knew that the ECB saw consumer prices slowing down closer to the target at 2.1% in 2025. As expected, the board did cut its growth projections through 2025. The statement mentioned that inflation is still seen as too high for too long and that interest rates will need to be set at sufficiently restrictive levels. Over the presser, Madame Lagarde was questioned on the matter of further tightening, to which she responded that she couldn’t say the ECB has reached its peak. Analysts at MUFG noted the recent decline in the eurozone money supply as a sign that past tightening is filtering through the economy. MUFG added that the ECB may have already done too much and this could increase recessionary risks. ABN Amro said there are signs that the labour market is starting to soften, they had been against a rate hike in September, and they now see the peak in the deposit rate as reached.