ECB meeting preview: Focus will be on economic projections as message to 'stay reassuringly neutral'

Matthew Ryan, CFA Ebury

The extent of the revisions to the current growth projections, now at 1.2% for 2025, 1% in 2026 and 1.3% in 2027, will be a key focus on Thursday. The inflation forecasts should also undergo some changes.

The ECB will need to take into account the delayed implementation of the EU Emissions Trading System (ETS2), which should mechanically lower the inflation projection for 2027. The bank will also, for the first time, publish its 2028 outlook.

We believe that a more resilient economy, combined with a still-tight labour market and sticky wage growth, removes any near-term justification for further rate cuts and keeps the door open for the next move to be a hike.

This view is also gaining traction in markets, and swaps are now pricing in a non-negligible possibility of a hike towards the end of 2026. This stance was echoed by recent comments from one of the most vocal ECB hawks, Isabel Schnabel, who said she is “rather comfortable” with expectations of a hike as the next change in policy, albeit “not anytime soon”. With the prospect of a rate increase so far out, it makes little sense for the Governing Council to allude to it at this junction.

It would also be too much of a pivot from the bank’s recent dovish-to-neutral signalling. Views within the Governing Council remain dispersed, which should also limit the extent of changes in communications.

The overarching message will most likely stay reassuringly neutral, with Lagarde reiterating that the ECB is “in a good place”. Bottom line: steady as she goes for now.

Author

Matthew Ryan, CFA

Ebury

Matthew is Global Head of Market Strategy at FX specialist Ebury, where he has been part of the strategy team since 2014. He provides fundamental FX analysis for a wide range of G10 and emerging market currencies.

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