July ECB: No Surprises, Rate path Uncertain

The European Central Bank (ECB) leaves rate unchanged, aligning with market expectations. The policy guidance was left unchanged, though the accompanying statement was revised to a slightly hawkish tone, emphasizing the persistently high domestic prices and services inflation. Additionally, the statement indicated that the ECB could not commit to another interest rate reduction in September and that they hadn't pre-committed to a particular rate path.

Developments since the June meeting?

Since the June meeting, the data has been mixed. Both inflation and economic activity have declined, while wages have seen a slight increase. Inflation eased by 0.1% in June, and the wage tracer jumped to 3.7% from 3.5% year-on-year. PMIs have marginally worsened. Unlike in June, ECB members have been less vocal about the timing of future rate cuts this time.

Press Conference Insights

Lagarde didn’t do much to alter market expectations for potential cuts in upcoming meetings, keeping the September decision wide open. She cautioned that the risks to growth are skewed to the downside. The ECB isn’t focusing on any specific data point; they will take all information into account before the next meeting.??Overall, this was a meeting with minimal market impact. The situation remains consistent with pre-meeting conditions, and the market's pricing of a rate cut in September remained steady at around 20 basis points.?