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Apr 05 - 02:55 PM

SocGen: We Expect a Hawkish Communication at Next Week's ECB Meeting

By eFXdata  —  Apr 05 - 02:00 PM


Société Générale anticipates no policy changes at the upcoming European Central Bank (ECB) meeting next week, with the central bank's focus likely on managing expectations for future rate cuts. Despite indications of a potential rate cut in June, the bank raises concerns over the possibility of stronger-than-expected activity and wage data by then. A hawkish communication is expected to continue, especially if unit labour costs remain elevated.

Key Points:

  • No Immediate Policy Changes Expected: SocGen predicts that the ECB will maintain its current policy stance in the upcoming meeting, with significant data on first-quarter labour cost growth still pending.

  • June Rate Cut Signaled, But Credibility at Risk: ECB speakers have hinted at a rate cut in June, despite missing key labour cost data, which could put the ECB's credibility at risk if forthcoming data show robust activity and wage growth.

  • Focus on Managing Expectations Beyond June: The ECB is likely to emphasize the data-dependency of the pace and extent of future rate cuts, aiming to temper market expectations with persistent hawkish communication as long as unit labour costs remain high.

  • Operational Framework Review Implications: The recent review indicating a long-term intention to maintain ample liquidity may exert downward pressure on the yield curve, potentially necessitating higher short-term rates to maintain the desired policy stance.

  • Revision of Terminal Rate Forecast: Given concerns about a rising neutral interest rate (r*), SocGen has adjusted its terminal rate forecast for the end of the easing cycle from 2% to 2.5%.


SocGen's preview of the ECB's April policy meeting suggests a cautious approach by the central bank, with no policy changes expected and a focus on managing expectations for future rate cuts. Despite indications of a potential rate cut in June, strong upcoming activity and wage data could challenge the ECB's current stance. The bank's revision of the terminal rate forecast to 2.5% underscores concerns about rising neutral interest rates and the implications for monetary policy.

Société Générale Research/Market Commentary


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