The ECB is expected to keep policy unchanged today while reaffirming a data dependent and/or meeting-by-meeting approach. There shouldn’t be much else to it honestly.
The statement language is expected to remain the same and so the only thing to watch for is Lagarde’s press conference. But even then, she will just reaffirm potential upside risks to the inflation outlook as well as downside risks to the economic outlook. I wouldn’t expect much more than that.
The inflation numbers in June pretty much gave policymakers what they needed to pause in July. As such, the scrutiny on policy setting will be deferred to the September meeting next. And that is when Deutsche anticipates the ECB to deliver their next and final rate hike. The firm notes that:
“A pause in July is expected. Current oil prices remain below 11 June levels, and the June HICP inflation data, which came in softer than expected, cast some doubt on the rapid emergence of indirect inflation. Furthermore, our June dbDIG survey indicated a complete unwinding of the initial energy shock’s impact on household inflation expectations. Waiting until September will provide the ECB with two additional HICP prints and updated staff forecasts, enabling a more informed decision.
We continue to anticipate a second and final hike to 2.50% in September. In the July press conference, we expect the ECB to maintain neutral communications. This implies no explicit forward guidance, emphasizing a data- dependent, meeting-by-meeting approach without pre-committing to a specific policy path. While the communication will be neutral, we believe the ECB’s tone on inflation will still convey a hawkish stance, consistent with a further 25bp hike in September being highly probable.”
As much as the central bank might want to leave the door open to hike in September next, I would not expect Lagarde to make any promises or pre-commitments in her press conference later. As such, the meeting decision today should be a non-event. And if so, that means the ECB will have done its job properly before breaking for the summer.
This article was written by Justin Low at investinglive.com.