ECB cuts rates as expected

Today’s market analysis on behalf of Michael Brown Senior Research Strategist at Pepperstone

13th December 2024

The ECB’s Governing Council duly delivered the 25bp cut that our base case, the sell-side consensus, and money markets had all expected, lowering the deposit rate to 3.00% this lunchtime. Such a move, which came as no surprise, brings policy easing to a total of 100bp this year.

Accompanying the rate cut was a policy statement that featured a ‘cut and paste’ of the policy guidance issued after the October meeting. Hence, policymakers again committed to following a data-dependent and meeting-by-meeting approach to upcoming decisions, while also stressing that no pre-commitment is being made to a particular rate path.

Meanwhile, the ECB’s latest staff macroeconomic projections pointed to a modestly faster pace of disinflation now being foreseen, with headline HICP seen at 2.1% next year, 0.1pp below the prior forecast. Meanwhile, GDP growth is now seen as being weaker, at just 1.1% next year, and 1.4% in 2026.

These projections, though, will likely have an incredibly short shelf-life, given that they take no account of recent political tumult in France and Germany, nor do they account for the potential impacts of any trade tariffs imposed by the incoming Trump Administration early in the new year.

In light of these, and other, downside risks, coupled with continued disinflationary progress being made, further 25bp cuts, likely at each of the next four meetings, remains the base case. Risks to this outlook, of course, tilt towards a more dovish path, potentially including 50bp rate cuts.

At the post-meeting press conference, focus will fall on whether such a ‘jumbo’ move was discussed at today’s meeting, as well as whether policymakers have yet formed any sort of consensus as to whether rates will have to head below neutral next year, in an attempt to further insulate the eurozone economy from the multitude of risks it is currently grappling with.