ANZ provides insights into the upcoming European Central Bank (ECB) policy meeting, speculating that the bank may adopt a more cautious approach despite President Lagarde's recent hawkish comments.

Key Points:

• President Lagarde's Stance: During her speech at the Jackson Hole symposium, ECB President Christine Lagarde emphasized the bank's commitment to addressing inflation. She indicated that the ECB is ready to increase rates as much as necessary to ensure price stability.

• Money Supply Data: Recent data has shown concerning trends in the Euro Area's (EA) money supply measures. The M3 money supply metric, which captures a broad spectrum of liquid assets, declined by 0.4% year-over-year in July. This marked the first decrease of such magnitude in over ten years. Additionally, both the M1 and M2 measures, which represent more immediate forms of money in the economy, are also on a downtrend.

• Credit Conditions & Lending Survey: These declines in money supply measures generally hint at tighter credit conditions. The ECB Lending Survey further indicates that these conditions might be verging on becoming restrictive.

Implications for ECB's Decision:

• Pause in Rate Hikes: Given the current economic conditions, ANZ believes that the ECB might opt for a more cautious approach at the upcoming September policy meeting. Despite President Lagarde's assertive stance on inflation, the declining money supply metrics and potential tightening of credit conditions could push the bank to pause on any further rate hikes.

Conclusion:

ANZ anticipates a potential pause in the ECB's policy actions during the next meeting. While the bank's leadership has communicated a strong stance against inflation, real-world economic indicators might necessitate a more measured approach. Investors and stakeholders in the European financial market will be keenly observing the ECB's decisions and their subsequent implications.