ECB Review: Meaningfully less restrictive – Danske Bank

Today the ECB decided to cut the policy rate by 25bp, so the deposit rate now yields 2.50%. The most important part of the decision was its assessment of the restrictiveness of its monetary policy stance. The ECB now sees monetary policy as 'becoming meaningfully less restrictive', which means it assesses that the current rate level is closer to the terminal rate than previously, Danske Bank's analysts Piet Haines Christiansen and Rune Thyge Johansen report. 

Disinflation remains on track and the economy faces challenges

"Given the strong uncertainty, Lagarde clearly guided that the data-dependent approach is probably higher than ever, thus there was no guidance or commitment to an April cut. Today's decision was a consensus, with none opposing, but Holzmann abstained."

"The staff projections lowered the growth forecast for 2025 to 0.9% y/y (down from 1.1%) and 2026 to 1.2% y/y (down from 1.4%). Inflation was revised higher in 2025 to 2.3% from 2.1% due to energy prices, but as futures have since declined, we do not interpret that as a hawkish signal, also reflected by the core inflation forecast being revised down to 2.2% from 2.3%."

"Markets have repriced the ECB expectations in recent days, not least following the change to the German fiscal position and spending package. Currently there are almost two additional cuts from the ECB until year-end priced, which is about one cut less than earlier this week."