BCE-1 (Credits: BCE)
By Christophe Boucher, Investment Director of ABN AMRO Investment Solutions
Since the last meeting, there has been no significant progress on inflation, which continues to slow steadily.
However, a 50 basis point cut would indicate that the ECB is more concerned about growth prospects, which could cause market tensions.
Ms. Lagarde will most likely prepare the ground for further cuts without committing in advance to a specific pace.
In our opinion, it is still too early for the ECB to resort to “forward guidance”. Trump's policies remain unpredictable.
On the one hand, the extent of downside risks to growth remains unclear and services disinflation has also not shown sufficient progress to give absolute confidence to the ECB.
On the other hand, growth in the third quarter rebounded thanks to a slight recovery in domestic demand, and the ECB must support this recovery.
Euro weakness adds a new layer of uncertainty to the path of inflation, as we move towards parity as the gap between Fed and ECB interest rates widens.
ECB projections would indicate weaker growth prospects, weighed down by weak German industry and French political uncertainty. Trump's uncertain policies may not be factored into these forecasts for now.
We expect rates to be cut twice, at least in the first half of the year, unlike the Fed's path of pauses.”
