ECB cut expected, guidance likely limited
Oct 14 (Reuters) -The European Central Bank is expected to cut its deposit rate this month by another 25 bps to 3.25%, even though its president Christine Lagarde appeared to raise the bar to such a move at September's meeting by saying there would not be enough data.
The limited data available – flash PMIs and inflation – as well as other central banks easing at a faster pace appear to have swayed the thinking of ECB officials.
The latest PMI data signalled a further deterioration in the growth outlook, as the weakness seen in the manufacturing sector has begun to spread to services. Meanwhile, services CPI posted its smallest monthly advance of the year, at 0.14%.
Markets now attach a 93% chance of an ECB rate cut, while 70 out of 75 economists polled by Reuters lean in favour of a 25 basis point cut.
The decision itself is unlikely to be a notable mover on the euro. In any case, much of the move is likely to be in the run-up to the decision, with the euro heading lower as traders position for a cut.
Any move in the euro on the day is likely to stem more from Lagarde’s press conference after the rate announcement. However, as was the case in September, she is likely to maintain a non-committal stance and stick with a meeting-by-meeting, data- dependent approach.
As emphasised by the shift towards an October cut, forward guidance offers very little value in an environment where policy expectations can change on a whim depending on a single data point.
Related comment: ECB-speak round-up: nL1N3LL0HY
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ECB pricing meeting by meeting https://tmsnrt.rs/4h4sILJ
ECB services CPI https://tmsnrt.rs/3BSg3LO
(Justin McQueen is a Reuters market analyst. The views expressed are his own.)
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