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🏦🇪🇺Desk Commentary: ECB September Monetary Policy Meeting


  • If you wonder why the ECB is not taking a step back and waiting until the full impact of the rate hikes so far has unfolded, the answer is very clear: it’s all about credibility. The ECB only has one job and this job is to maintain price stability. The eurozone has not seen price stability in almost three years.

  • Looking ahead, a further weakening of the economy and more traction in a disinflationary trend will make it very hard to find arguments for yet another rate hike before the end of the year. The remark in the official communication that “based on its current assessment, the Governing Council considers that the key ECB interest rates have reached levels that, maintained for a sufficiently long duration, will make a substantial contribution to the timely return of inflation to the target” shows that today’s rate hike looks like the last.

  • Today’s hike isn't only a credibility booster, it will also be the last in the current cycle.


  • The European Central Bank raises both the deposit facility and main refinancing rata by 25bp, while OIS was pricing 17bp into the decision. Based on its current assessment; the Governing Council considers the key ECB interest rates have reached levels that, maintained for a sufficiently long duration, will make a substantial contribution to the timely return of inflation to the target. This implies the hiking cycle is likely over. As concerns the PEPP; the Governing Council intends to reinvest the principal payments from maturing securities purchased under the program until at least the end of 2024.


  • With the eurozone teetering on the brink of recession, the ECB isn't likely to prolong its tightening cycle any further. Leading indicators, such as manufacturing surveys, suggest the bloc is entering recession, while core inflation is also moderating.

  • We believe there is a very good chance this is the last rate hike for the ECB


  • The key sentence of the prepared statement, as stressed again and again by President Lagarde during the press conference states ”that the key ECB interest rates have reached levels that, maintained for a sufficiently long duration, will make a substantial contribution to the timely return of inflation to the target.” Put differently, the ECB will now remain on hold for the foreseeable future, unless the inflation outlook were to change again in a significant way. Data dependency was also stressed, though the sensitivity to incoming data on a monthly basis should be now clearly lower (i.e. bigger surprises would be needed for a change in the policy stance)

Goldman Sachs:

  • The latest data in the eurozone points to a stagnating economy, but inflation remains too high for comfort, supporting the case that the ECB will keep rates unchanged in the coming year

  • The central bank projects higher headline inflation in 2023 and 2024, consistent with firmer energy prices, but acknowledged underlying price pressures have started to ease

  • The only shift from stable rates might come from a material growth downturn that would also speed up disinflation, as the ECB is also fairly downbeat on the growth outlook


  • The hike was intended to “reinforce the progress” of inflation towards the ECB’s 2% target. However, as we had warned ahead of the meeting, today’s decision could turn out to be somewhat counterproductive

  • It is questionable whether today’s hike achieves the aim of reinforcing the progress, though. On a positive note, the increase sends the signal that the ECB will continue to prioritize inflation risks over a weaker growth outlook. On the other hand, the new staff projections (see below) and the suggestion of peak rates added a distinctively dovish slant

  • Throughout the hiking cycle, money markets have been quite consistently pricing the first rate cut about five months after peak rates are seen. And with the ECB limiting the need to look up today, the market may be inclined to start focussing on the path down. So if this relationship persists, or if longer-term interest rates decline further on the back of a weaker growth outlook, the ECB’s reinforcing hike may actually turn out to undermine its progress towards achieving the inflation target.


  • In our view, the ECB and President Lagarde effectively closed the door on further rate hikes during the press conference. Of course, the ECB cannot completely rule out further interest rate hikes at this point in time. But the course of the press conference points very much in the direction that further rate hikes have become very unlikely – if the data do not move substantially in the wrong direction before the next meeting

  • Despite today's rate hike, we still believe it is unlikely that the ECB will cut rates in 2024, as many still expect. Underlying inflationary pressures, which are driven by cyclical and structural factors, are likely to remain too high for that


  • The ECB sees the risks to its growth forecasts as tilted to the downside, with President Lagarde noting that the current transmission of monetary policy to financial conditions and the real economy was ‘stronger’ and ‘faster’ than during any previous episode of rate hikes. Against this background, it is surprising that even the ECB’s new projection embodies a reasonable strong recovery in economic growth from Q1 of next year.

  • We continue to expect macro outcomes (both growth and inflation) to come in below ECB expectations and as such we do view this as the peak in policy rates. In addition, we expect the central bank to pivot towards rate cuts next year.



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