Synopsis:

RBC anticipates that the ECB will not cut rates at the upcoming July meeting, instead waiting until September when fresh staff forecasts are available. The ECB may signal a readiness to ease further without committing to a specific timeline.

Key Points:

• Rate Cut Timing: It is extremely unlikely that the ECB will cut rates next week. September is seen as a more natural point for the next rate reduction, aligning with the availability of new staff forecasts.
• Market Expectations: ECB Governing Council members have endorsed the implied market path of 1-2 rate cuts this year.
• Communication Strategy: The ECB may begin to lay the groundwork for future rate cuts by reintroducing an explicit easing bias without pre-committing to a specific timeline, as it did before June's rate cut.
• September Prospects: RBC believes the ECB is inclined to cut rates in September but will avoid pre-committing to this path. The ECB is likely to communicate a general readiness to ease policy further without specifying September as the definitive time for rate cuts.
• Market Impact: The meeting is not expected to have a major impact on markets, as the market is already well-priced for 1-2 rate cuts this year. RBC views the current pricing as close to fair value.
• Forecast: RBC expects a rate cut in September followed by another in December, aligning with current market pricing.

Conclusion:

RBC anticipates that the ECB will refrain from cutting rates at the July meeting, preferring to wait until September when new forecasts are available. The ECB is expected to signal a general readiness to ease further without committing to a specific timeline, aligning with market expectations for 1-2 rate cuts this year.