Synopsis:

Goldman Sachs expects the ECB to implement a 25bp rate cut at this week’s meeting, in line with market expectations. The focus will be on the ECB’s data assessment, updated projections, and future guidance.

Key Points:

• Rate Cut Anticipated:

  • A 25bp policy rate cut is expected, as widely anticipated by the market.

• Investor Focus:

  • Assessment of Data: How the ECB evaluates recent economic data.
  • Updated Projections: New staff projections for inflation and growth.
  • Future Guidance: Insights into the ECB’s path forward.

• Communication:

  • The ECB is likely to justify the cut with increased confidence in the disinflation process.
  • Expect limited changes in communication; the Governing Council will likely maintain a “data-dependent and meeting-by-meeting approach” without a formal easing bias.

• President Lagarde’s Statement:

  • Lagarde is expected to emphasize data dependence and suggest that further cuts could be considered if disinflation trends continue.
  • No specific comments on the likelihood of an October cut are anticipated, but she will indicate that all incoming data will be reviewed for future decisions.

Conclusion:

Goldman Sachs anticipates a 25bp rate cut from the ECB, with limited changes to the overall communication strategy. The focus will be on how the ECB addresses data, projections, and future guidance, with an emphasis on data dependence and potential further cuts if disinflation remains on track.