Salman Ahmed, global head of macro and strategic asset allocation at Fidelity International, has commented on today’s European Central Bank decision.
“The European Central Bank (ECB) left interest rates and forward guidance unchanged as expected meaning they are sticking to their key message of remaining data dependent and taking a meeting-by-meeting approach. There was little to shift pre-meeting monetary policy expectations.
“Of interest was the message of euro area growth resilience and the fact that recent trade developments and the ceasefire in the Middle East had mitigated some downside growth concerns. Taken together, this may point to an improved growth outlook relative to the September forecasts that undershot GDP in Q3. The ECB are sticking to the “good place” mantra and this is adding to it.
“On inflation, two side risks continue to be carefully emphasised as the ECB balances what they see as upside risks from a stronger euro and potential over supply of imports against potential upward pressure from fiscal stimulus and a fragmentation of global supply chains.
“Indeed, it’s becoming increasingly clear that the bar for another rate cut has risen higher than markets are currently pricing, with an increasingly narrow path that would require faster than expected disinflation alongside evidence of impairment of transmission. The fact that Lagarde commented that transmission is seen as effective, despite recent surveys and the ECB’s own analytical models suggesting that financial conditions are tighter than expected reiterates the high bar to cut. As a result, we believe we have now reached the end of the cutting cycle.”
