Next week, ECB is widely set to be on hold in terms of policy rate changes for the first time since June last year. Since the September meeting, inflation and growth data have been broadly in line with expectations and taking into account the clear guidance from ECB, no changes should be expected at the upcoming meeting.
We expect Lagarde to acknowledge a discussion on advancing the PEPP reinvestments during the Q&A part of the press conference, thereby signalling a tightening bias, albeit with some optionality still in its communication.
Markets are pricing ECB policy rates largely unchanged for the coming six months, before a very slow and gradual rate cutting cycle commence from Q2 next year. Rate cuts of 89bp are being priced between April 2024 and April 2025.
