ECB September Meeting : Higher Bar for a Rate Cut Despite Remaining Uncertainties

At today’s meeting, the ECB Governing Council decided to keep its three interest rates unchanged at 2.00%, 2.15% and 2.40% for the interest rates on the deposit facility, the main refinancing operations and the marginal lending facility respectively. The decision – widely expected – was unanimous. In the monetary policy statement, the ECB Governing Council stressed that “ the economy has continued to grow despite the challenging global environment. The robust labour market, solid private sector balance sheets and our past interest rate cuts remain important sources of resilience. However, the outlook is still uncertain, owing particularly to ongoing global trade disputes and geopolitical tensions ” , which is broadly in line with the statement of the September meeting. In conclusion, the statement highlights that “ In any case, we stand ready to adjust all of our instruments within our mandate to ensure that inflation stabilises sustainably at our medium-term target and to preserve the smooth functioning of monetary policy transmission ”. During the Q&A session, President Lagarde stressed that “ downside risks to growth outlook have abated, while on inflation front they appear more balanced ”. Against this background and given a more resilient economic growth , now the probability to have a status quo in December has significantly increased. At the same time, we think that the market underestimates the risk of an adverse development in the labour market conditions and the materialization of the downward risks attached to trade uncertainties underlined by President Lagarde.