It's "vital for ECB to get ahead of data" in its forthcoming rate decision this week, according to Geoff Yu, Senior EMEA Markets Strategist at BNY.
In a briefing note today (16 October) he said: “Considering the language used during the September post-decision press conference, it is surprising that the base case for Thursday’s decision is now for a cut.
“A month ago, President Largarde reaffirmed a strict “data-dependent” approach when asked about the prospects of an October cut. At the time, she noted “confidence” in inflation returning to target “in a timely manner.” Importantly, when assessing the deterioration in the Germany economic outlook, she stated that it was “anticipated.”
“Barely two weeks later following a new round of data releases, including lower than expected inflation prints for September and ongoing weakness in PMI, she noted that confidence in the inflation path had been “strengthened” but crucially she said that this would be “taken into account” at the October meeting.
He added: “It is difficult to envisage any material change in the Eurozone economy during those two weeks. The "net cost” to policy guidance by making October a live meeting would have been limited in any cases.
“In our view, this may have cost the Eurozone valuable time in factoring in easier financial conditions. For now, it is vital for the ECB to get ahead of data - which the Fed appears willing to do – rather than react in kind.”
