Rhythmic Reasoning_Full Report_Final_EN - Flipbook - Page 27
THE DRUMMER'S EAR | RHYTHMIC REASONING
ECB President Lagarde had a hawkish press conference that heavily
doused expectations for further rates action, particularly as she
said that the “disinflationary process is now over for the euro
area”, with little pushback from her ECB colleagues in the weeks
since to suggest there are enough doves to motivate a rate cut.
Notably, Lagarde also highlighted that a small deviation from the
2% inflation target (as the updated forecasts reflect, Fig. 4) in either
direction won’t always prompt ECB action, suggesting that it would
take much larger shifts in expectations for the bank to resume cuts.
Fig. 4: The ECB expects headline and
core inflation to align around 2%
12%
YoY % change
8%
4%
0%
-4%
2017
2019
2021
2023
ECB target
Headline inflation
Headline forecast
Core forecast
2025
Source: ECB, Scotia Wealth Management
2027
Core inflation
The ECB may maintain their current relatively neutral stance for
a number of quarters, but with downside still outweighing upside
risks the direction for rates remains biased lower. Officials may opt
for only one (or two, at most) additional cut were the economy to
experience a ‘generic’ slowdown of a few decimal points in GDP
growth, with zero or negative interest rates policy looking highly
unlikely unless the ECB heads for a multi-quarter recession.
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