The rate decision is going to be rather straightforward, with the ECB set to cut key policy rates by 25 bps today. So, is there anything else to watch out for as the central bank delivers the same decision for a sixth consecutive time? Let’s take a look.
The thing that will be scrutinised heavily from the statement today will of course be this part. The ECB in March tweaked their language on restrictiveness in saying that “monetary policy is becoming meaningfully less restrictive”. The previous statement before that said “monetary
policy remains restrictive”.
So, are they about to change that up again in April amid the mixture of risks from US tariffs?
That’s the key thing to look out for in the statement, in seeing if the ECB has the appetite to switch so hastily to a more neutral stance.
But even so, don’t expect that to change the bigger picture outlook for the central bank though. Amid downside risks to the economy, they are still expected to deliver more rate cuts down the road. The question though is by how much more?
The issue here is that all of this hinges on how Trump’s tariffs are going to play out in the weeks/months ahead. And even if not directly regarding trade with the EU, even US-China relations will have a spillover impact. So, that needs to be considered as well.
In that lieu, the main takeaway is that the ECB will surely continue their meeting-by-meeting approach. And that’s basically the more important thing right now.
As such, even with the removal of the phrase “monetary policy is becoming meaningfully less restrictive” it doesn’t mean a material change to the ECB’s next steps. They still have to take things one meeting at a time considering what’s at stake.
In essence, the ECB will not offer much of any forward guidance and stick to a more flexible i.e. data-dependent and meeting-by-meeting approach.
Besides that, the only other thing today will be to watch out for Lagarde’s press conference. I wouldn’t expect too much though as I would wager that Lagarde is going to place a lot of emphasis on this one word: uncertainty. She will likely stress a great deal on that and avoid committing to anything.
No doubt she will be questioned as well on any removal of the above phrase as she said before this that:
“It’s not just, you know, an innocuous little change, it’s a change that has a certain meaning. We are now moving by having our monetary policy is
becoming meaningfully less restrictive to a more evolutionary approach.”
So, to move on from that so quickly will definitely invite some jabs from the press. But at this stage, she can easily dodge that by pointing to Trump’s tariffs and the uncertain nature of its impact on the euro area economy and inflation.
There’s a slight chance that markets could take all of this to mean a more hawkish stance. But if Lagarde plays her cards right, markets will be left waiting on trade developments in the aftermath – the same as before.
