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ECB meeting
Thursday, June 15 at 10.15 pm AEST
As we moved through May, there was a discernible deceleration in the European economy’s momentum. A series of lukewarm data points – including industrial production, PMI, and the German Ifo survey – cast long shadows, particularly given the accompanying economic slowdown in China, the Euro Area’s (EA) primary trading partner.
Adding to the complex picture was the release of softer-than-anticipated EA inflation figures for May. The headline inflation dipped to 6.1% YoY, a decline from the previous 7%, largely propelled by a reduction in prices for energy, food, alcohol, and tobacco. The core inflation rate, which judiciously excludes these volatile components, also slipped from 5.6% YoY to 5.3% YoY.
Despite signs of disinflation, hawkish comments from ECB President Christine Lagarde this week signal that another ECB rate hike is likely next week. She stated, ‘The latest available data suggest that indicators of underlying inflationary pressures remain high and, although some are showing signs of moderation, there is no clear evidence that underlying inflation has peaked.’
The interest rate market is fully priced for a 25 bp rate hike in June before another 25bp rate hike in July which would take the ECB’s deposit rate to 3.75%. The ECB is expected to start cutting rates in early 2024 in response to slower growth.
ECB’s deposit rate chart
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