ECB preview: The ground is shifting

The data released since the last ECB meeting have put an end to any speculation of further rate hike s . The question now is rather how early the ECB will start cutting its policy rate. While we don’t expect to get an y specific information on th is from the December meeting, we expect a clear shift of tone to emerge , with data dependency of any upcoming decision even more stressed than in the past . The more dovish tone will also be reflected in the updated staff projection s that will show a significant downward revision of the 202 4 inflation figure significantly below 3 % . The new staff projections will consequently open the door for rate cuts during the first half of 2024 – we expect the first rate cut in June 2024 and a total of 125bp of cuts in 2024 . We also expect the Governing Council to “ officially ” discuss a change to the forward guidance regarding the Pandemic Emergency Purchase Program. While we think it is somewhat more likely that a change will be announced only early next year, there is – not least because of the sharp drop in government bond yields – a clear possibility that a change will already be announced next week. We expect re-investments to be reduced by half in April 2024 and to be entirely stopped in Ju ne 2024.