By eFXdata — Jan 24 - 10:30 AM
Synopsis:
BofA expects the ECB to cut all three policy rates by 25bp at next week's meeting, maintaining the December guidance. While the cuts are largely agreed upon, the press conference may focus on risks tied to US policy spillovers, the recent euro movement, and energy prices.
Key Points:
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Rate Cuts Expected:
- The ECB is expected to cut rates by 25bp across the board.
- The neutral rate of 2.5% is the target for most policymakers, including hawks.
- The first two rate cuts appear almost certain, with subsequent moves dependent on data.
- BofA maintains that economic conditions may push the terminal rate to 1.5% or lower.
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Press Conference Dynamics:
- Focus likely on US policy spillovers, tariff impacts, and recent euro and energy price moves.
- The ECB may defer concrete evaluations to the March forecast exercise.
- Expect acknowledgment of uncertainties around tariffs and a measured approach to energy price shocks, emphasizing their differing impacts.
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Inflation Risks:
- The ECB might highlight that risks to US inflation from tariffs may not necessarily spill over into the Eurozone.
- The willingness to “look through” energy price moves may reflect initial conditions in the Euro area.
Conclusion:
BofA expects a relatively straightforward meeting with the ECB cutting rates by 25bp and reiterating December's guidance. However, the press conference may provide insights into how the ECB views external risks, including US tariffs, energy prices, and currency developments, while likely deferring concrete assessments to March.
Source:
BofA Global Research