Investing.com - The European Central Bank announced its first rate reduction since 2019 on Thursday, but gave few hints of further moves, widely seen as a “hawkish cut”.
The European Central Bank lowered its key rate by 25 basis points from a record high to 3.75%, its first cut in five years. However, it raised its inflation forecasts and President Christine Lagarde declined at a press conference to confirm it had entered a phase of 'dialling back' its restrictive monetary policy.
Evercore ISI, however, has taken a more forgiving stance, saying this is a “cautious cut” not a “hawkish cut.”
“The Council did not present the cut as a one-off and Lagarde said the ECB is prepared to make policy on a forward-looking basis given increased confidence in its forecasts,” said analysts at the investment bank, in a note dated June 6.
The upward revision to the projections reflected more pessimism on wages and productivity as well as a pull-forward of growth. But it left inflation at target at end 2025, falling fractionally below target in 2026. This was conditioned on roughly 2 to 3 cuts, though it was locked before the May inflation print.
The pace of future cuts will depend on data, with Lagarde saying the ECB expects incoming data will remain bumpy, inflation will fluctuate this year near current levels and wage growth will turn lower only late this year.
“This underscores why the ECB is cautious about pre-committing to anything,” Evercore ISI said. “But it also implies the baseline against which incoming data will be assessed does not assume much near-term progress, which is arguably dovish.”
The bank sees a careful but clear default of a cut at each projection meeting for three total this year conditional on each update confirming the macro outlook.