European Central Bank maintains steady easing, Swiss national bank accelerates

Summary

• The European Central Bank (ECB) lowered its Deposit Rate by 25 bps to 3.00% at today's monetary policy announcement, and the accompanying statement was noticeably dovish in tone. In particular, the ECB's medium-term forecasts for underlying inflation were slightly below the 2% target, and the central bank removed its pledge to keep policy rates "sufficiently restrictive for as long as necessary” to return inflation to target.

• Overall, we view today's announcement as consistent with and supportive of our outlook for continued steady rate cuts from the European Central Bank. Our base case remains for 25 bps rate cuts in January, March, April and June, with a final 25 bps rate cut in September, for a terminal ECB policy rate of 1.75%. The announcement opens the door to a possible 50 bps rate cut during early 2025 if Eurozone growth and inflation were to prove especially weak.

• The Swiss National Bank (SNB) surprised market participants by delivering a 50 bps reduction in its policy rate to 0.50%, citing a decrease in underlying inflation pressures. Given the outlook for further ECB easing and the potential for upward pressure on the franc, we expect the Swiss National Bank to cut rates again by 25 bps to 0.25% in March.

European Central Bank cuts rates, offers dovish guidance

The European Central Bank (ECB) lowered its Deposit Rate by 25 bps to 3.00% at today's monetary policy announcement, an outcome that was widely expected, and the ECB's accompanying statement was noticeably dovish in tone. Overall, we view today's dovish announcement as supporting our outlook for the ECB to cut rates at every meeting through June of next year, while also opening the door to a possible 50 bps rate cut during early 2025 if Eurozone growth and inflation were to prove especially weak.

Among the key elements of today's ECB statement:

• The disinflation process is seen as well on track, and the central bank removed its reference to an expected rise of inflation in the coming months.

• Domestic inflation has edged down but remains high, with wages and prices still adjusting to the past inflation surge with a substantial delay.

• The central bank lowered its projections for underlying inflation (CPI excluding food and energy) slightly. The ECB now sees underlying inflation at 2.9% in 2024 and 2.3% in 2025 (both unchanged), 1.9% in 2026 (previously 2.0%) and 1.9% in 2027.

• The ECB also lowered its GDP growth projections to 0.7% for 2024 (previously 0.8%), 1.1% for 2025 (previously 1.3%) and 1.3% for 2026 (previously 1.5%).

Download the Full Report!