We expect the key takeaway from next week’s ECB meeting will be an affirmation of the prevailing ECB narrative, of the ECB on route to deliver a rate cut in June. While this meeting may be considered an interim meeting, and lead to limited market reaction, we expect the ECB to deliver a clear commitment to a June rate cut, in the form of explicit guidance of an ‘intention to cut by 25bp in June’. We expect no guidance will be offered beyond that point on the pace of cuts or the end level of the tightening cycle.
Markets are pricing 1bp for next week’s meeting and 23bp of cuts in June. Our baseline scenario of three cuts of 25bp this year still holds, but see the risks skewed for ECB to deliver less than that this year, due to the sticky underlying inflation.
