On Thursday 12 September, the ECB is widely expected by both analysts and markets to deliver a 25bp rate cut. The moderation in the labour market and economic activity since the June meeting should fuel confidence in the disinflationary process being on track, in particularly given the slowdown in wage growth.
We expect Lagarde to confirm that that it is entering the dialling back phase, but we do not expect a commitment to a specific timing of further rate cuts; thus, we do not anticipate that it will deviate from the meeting-by-meeting and data-dependent approach to the policy rate changes, thereby keeping its guidance’s optionality and flexibility.
The updated September staff projection is expected to be largely unchanged, which is expected to lead to a cautious approach by the ECB. We will pay attention to the staff’s projections on wages and productivity, on top of the inflation projection, in order to assess ‘Lane’s formula’.
