Synopsis:

Nordea discusses the European Central Bank's (ECB) decision to pause its rate hikes as of October and reflects on the potential future trajectory of the ECB's monetary policy.

Key Points:

• Hiking Pause: The ECB's decision to halt rate increases was anticipated, given the weakening economic outlook and inflation beginning to surprise on the downside.

• Data-Dependent Hikes: Further rate hikes seem less likely now, with Nordea suggesting it would take significant positive surprises in economic data, inflation trends, or energy price spikes to prompt another increase at the ECB's December meeting.

• Continued Inflation Concerns: Despite a drop in inflation, the core rate (which excludes volatile energy and food prices) is decreasing more slowly, suggesting that inflationary pressures are still persistent.

• No Immediate Cuts: The analysts at Nordea believe that rate cuts are not imminent. They anticipate that as base effects diminish, the path back to the ECB's inflation target of 2% could be more challenging, implying that maintaining current rates could be the ECB's strategy in the near term.

Conclusion:

Nordea predicts that the ECB is done with its rate hiking cycle for now but also emphasizes that this pause does not necessarily open the door to rate cuts soon. The ECB will likely continue to monitor economic and inflation data closely, with a particular focus on core inflation, before making any further adjustments to policy rates.