FRANKFURT (Reuters) -European Central Bank policymakers were in no hurry to cut rates when they met last month as uncertainty remained high and some even thought that no more easing would be needed, the accounts of the October 29-30 meeting showed on Thursday.
The ECB left interest rates unchanged at the meeting, arguing that policy was in a “good place” as the economy was showing resilience and inflation was firmly at target.
This solidified confidence among investors that no further rate cut was coming this year and markets now see just a one-in-three chance of more easing in 2026.
“There continued to be a high option value to waiting for more information,” the ECB said in the accounts of the October meeting. “The current level of policy rates should be seen as sufficiently robust for managing shocks.”
TWO-SIDED RISKS
Given that risks were two-sided, the ECB’s 2% deposit rate should be seen as “sufficiently robust” for managing shocks, policymakers added.
As the outlook remained relatively benign and some of the worst risks were diminishing, some policymakers even argued the ECB may be done cutting rates after halving the deposit rate in the year to June.
“The view was expressed that the rate-cutting cycle had come to an end, since the current favourable outlook was likely to be maintained unless risks materialised,” the ECB added. “Taking a steady hand approach could increase the chances of remaining in a good place.”
Others, however, pushed back and said that full optionality meant that rate cuts could not be taken off the table, especially in case the projected undershooting of the inflation target became sustained.
The ECB will release its initial 2028 projections on December 18, but some played down these numbers, arguing that the information content of more distant horizons had more limited value.
RATE CUT TALK MAY RESUME NEXT YEAR
Economic data since the meeting has solidified market bets for steady rates in the months to come.
Indicators suggest that the bloc continues to grow, though at an unspectacular pace, and inflation remains firmly around the ECB’s 2% target.
However, rate cut talk may resume next year, when inflation is set to fall below the ECB’s target, mostly on base effect as energy prices are sharply lower.
While the ECB traditionally looks through inflation volatility caused by energy price swings, some governors have warned that below-target readings could weigh on inflation expectations and perpetuate anaemic price growth.
“It was important for the Governing Council to maintain full optionality for future meetings and to be agile in order to react quickly,” the ECB said. “Communication should therefore remain non-committal about future interest rate decisions.”
(Reporting by Balazs Koranyi; Editing by Alex Richardson and Alexandra Hudson)
Comments