Societe Generale analysts report that several ECB officials have turned more dovish, emphasizing downside inflation risks and potential disinflation from rising Chinese imports. Others warn that a sharp Euro appreciation could prompt a policy response. Nonetheless, with rates near the estimated neutral level, the bank judges that reopening debate on further cuts remains difficult.

Officials flag downside inflation risks

“Communication from ECB members turned dovish after the meeting last Thursday.”

“Several officials warned that downside inflation risks are becoming more prominent and could reopen the door to further rate cuts.”

“Rehn flagged a “real risk of lower‑than‑expected inflation,” while Villeroy stressed that downside risks are “probably more significant” and highlighted rising Chinese import volumes as a potential source of additional disinflation.”

“Kazaks struck a cautionary tone, warning that a sharp and rapid strengthening of the euro could trigger an ECB response.”

“Overall, with the policy rate appropriate at 2%, the mid-point of the neutral range, the bar is high to re-open the debate about lowering rates.”

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