📝Inflation Data Paves The Way For Another 25Bps ECB Rate Cut: ING

The latest inflation data from Germany, France, and Italy will have cemented the case for another 25 basis point rate cut next week. The main question, however, will be what’s next for the ECB. At 2.5%, the policy rate would be at the upper end of the neutral interest rate range. More hawkish ECB officials, like Isabel Schnabel, have started to push back against additional rate cuts. The critical communication to watch next week is whether the ECB drops the “restrictive” label from its official stance. Given the currently unprecedented high level of uncertainty, a complete drop of the “restrictive” label might be too hawkish. Some modification, e.g. towards “less restrictive” or “hardly restrictive anymore” might be better options to signal a possible end to the current autopilot.

In any case, given the structural weakness of the eurozone economy as well as looming tariffs and lower inflationary pressure on the back of a turn in the labour market, we still think that eventually the ECB will have to bring rates down to at least 2%, to make sure that rates are no longer restrictive but possible even accomodative. - ING