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TD Securities strategists expect the European Central Bank (ECB) to leave the deposit rate at 2.00%, reiterating a meeting-by-meeting approach without pre-committing on future moves. However, recent inflation expectations data raise the risk of a more hawkish press conference. President Lagarde is seen acknowledging potential need to move rates if incoming data continue to support higher inflation expectations.
ECB steady but hawkish risk elevated
“We expect the ECB to keep the deposit rate on hold at 2.00%, with the press conference being an extension of the last with an update on where things stand today in relation to the March projections, but no explicit commitment to future decisions.”
“As such, the statement should maintain the meeting-by-meeting approach and the Governing Council would not “pre-commit to a particular rate path”.”
“However, the risks of a hawkish message in the press conference have increased given the outsized CES [Consumer Expectations Survey] 3-year inflation expectations release.”
“Though Lagarde is unlikely to signal exact timing, we expect her to give a nod to the need to move off the perch if more data evidence supports the CES lean.”
“Put together, we expect the lack of clear evidence of pass through to core inflation and faltering GDP growth would stay the ECB’s hand at the upcoming meeting and advocate for balance of risks and need for continuation of meeting-by-meeting approach.”
