The ECB concluded its strategy evaluation yesterday. The review does not suggest important changes in the conduct of monetary policy, or in the communication of their policy decisions, reports Bas Van Geffen, Rabobank’s macro strategist.
Minors probabilities of rates cuts despite inflation below what was expected in 2026
“The ECB confirmed its inflation objective of 2%. Those responsible for policies will respond firmly to large and sustained deviations from the objective. However, the review also allows, to some extent, a little more tolerance to smaller deviations. This, in theory, reduces the probabilities that the ECB responds to the expected inflation below what expected in 2026.”
“Political rates remain the main instrument, but the review suggests that the ECB will not exhaust this instrument before those responsible for policies consider alternatives. If greater relief is required, for example, in response to an escalation of the commercial war, this could lead to a mixture of policies where interest rates do not cut to zero, but that the ECB restarts quantitative flexibility in its place.”
Source: Fx Street
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