ECB Preview: Political uncertainty boosts case for a September cut – Societe Generale

Following the relatively data-insensitive June rate cut, European Central Bank (ECB) speakers have stood firm on the message of data-dependency. Next week’s ECB meeting likely to take stock of the available data and compare it to the latest forecasts, Senior European Economist at Societe Generale Anatoli Annenkov notes.

Possible rate cut in September

“Following the relatively data-insensitive June rate cut, ECB speakers have stood firm on the message of data-dependency. With data having been on the soft side, we believe the odds are for another cut in September. Next week’s ECB meeting is therefore likely to mainly take stock of the available data and compare it to the latest forecasts, with the press conference likely to be the most interesting part.”

“We still believe the risks to inflation are to the upside, possibly forcing the ECB to pause any rate cuts in December. The Governing Council may also have some initial discussions on the upcoming Strategy Review. Comments made at the ECB’s recent annual Sintra conference highlighted that some policymakers feel uneasy about the past QE, urging a review of its benefits and the ECB’s commitment to deploy it.”

“As we have long argued, the support for large-scale QE may be less obvious in hindsight given the relatively small impact on inflation while also having unwelcome side effects. This argues, in our view, for much more targeted and temporary interventions in the future, predominantly aimed at financial stability.”