Europe | The ECB hits pause to think things over

Summary

At her press conference on Thursday after the ECB meeting, President Lagarde said goodbye to journalists and listeners wishing to hear more about a ‘wait and see’ holiday, an expression widely used by central bankers to imply that the next monetary policy moves will depend on how events unfold.

Key points

• Key points:
• Lagarde implied that the ECB is relatively content with the current interest rate situation (2% for the deposit rate) and that they will only make a few more cuts if the data or events call for it.
• Before the meeting, the markets were pricing in a further 25-bp cut for the remainder of the year, given the lingering risks linked to US protectionist pressure and—linked to this—to the recent appreciation of the euro (and many other currencies) against the dollar, which tightens European financial conditions, helps to reduce inflationary pressures and allows for lower rates.
• The main reason for optimism seems obvious: the good news of the last few days regarding a potential tariff agreement with the United States, following Trump’s tactical threats to raise them to 30%.
• The other factor reflecting this optimism is the positive reading of GDP growth data (not “just” to do with the fact that exports to the US were rushed through ahead of the tariffs, according to Lagarde), and little apparent concern over inflation heading well below the target.
• Much remains to be defined in the final phase of the year, even if the recent good news allows the ECB to take a relatively stress-free vacation.

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