Vigilant watch: Lagarde (left) at an economic conference in Aix-en-Provence, France. Traders are likely to watch closely for any clues offered by the ECB president on what prospects there might be for its Sept 12 meeting. — Bloomberg
LONDON: European Central Bank (ECB) officials may be about to prime investors for another interest rate cut, though only after one of the Governing Council’s longest-ever summer breaks between decisions.
With a move on Thursday effectively ruled out as policymakers take time to assess the strength of lingering inflation pressures, traders are likely to watch closely for any clues offered by president Christine Lagarde on prospects for the Sept 12 meeting.
By then, the ECB will have seen two more monthly consumer-price readings, and have newly-compiled forecasts in hand as well.
Several policymakers have stated a preference for acting at such quarterly occasions when fresh projections are available.
Officials may also have a clearer view by then of the Federal Reserve’s intentions.
With fresh data showing US inflation broadly cooled to the slowest pace since 2021, speculation is mounting that policymakers in the United States will also seek to cut rates in September.
New information that the Governing Council will see before its decision on Thursday includes industrial production in May, which is forecast to show a second month of contraction, and a final measure of inflation for June tomorrow.
The ECB will be down to one voting member, as Spain has yet to appoint a new central bank chief to succeed Pablo Hernandez de Cos, whose non-renewable term ended just over a month ago.
Aside from questions on the path of borrowing costs, the ECB president may also be quizzed on France, which faces heightened scrutiny in financial markets amid concerns about its financial outlook after snap elections produced a hung parliament.
Bloomberg Economics senior eurozone economist David Powell said: “The ECB’s July 18 meeting will be closely watched by investors to fine-tune their expectations for the timing of the next rate reduction, even though the central bank is almost certain to leave rates unchanged this month.
“Lagarde is likely to hint at another move in September, without being too committal.”
Lagarde’s press conference could resonate more than usual, as colleagues heading to the beach during the summer fall are largely silent at this time.
Similarly, any appearance by an ECB official at the Fed’s annual retreat in Jackson Hole, Wyoming, in late August, could draw extra attention. — Bloomberg
