The European Central Bank (ECB) left interest rates unchanged at a meeting today, in-line with market expectations. Current rates: Main refinancing operations at 4.25%, marginal lending facility at 4.50%, and deposit facility at 3.75%.
ECB President Lagarde began a post-meeting press conference at 1:45 pm BST today. Below are key takeaways from the presser:
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Labour Costs and Wages: growth in labour costs will remain elevated in the near term. Wages are rising at an elevated rate.
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Inflation: domestic inflation remains high. Inflation is expected to fluctuate near current levels for the rest of the year. Harmonized Index of Consumer Prices (HICP) is expected to decline to target in the second half of next year.
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Labour Market: more jobs were likely created in Q2, mainly in the services sector. The labour market is still resilient.
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Economic Growth: recovery is expected to be supported by consumption. Services are leading the recovery, while industry and exports remain weak. Investments point to muted growth in 2024 and the economic growth in Q2 was likely slower than in Q1 although incoming data indicates that the economy grew in Q2. Risks to growth are tilted to the downside.
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Compensation and Profits: recent data on compensation is in line with expectations. Surveys suggest that profits should be dampened in the near term.
Details from the ECB's Monetary Policy Statement
- Recent data on compensation is in line with expectations.
- Some underlying inflation measures increased in May due to one-off factors; most measures stable or decreased in June.
- Inflationary impact of high wage growth has been mitigated by profits.
- Domestic price pressures and services inflation remain high; headline inflation expected to stay above target into next year.
- Policy rates will remain sufficiently restrictive as needed.
- Decisions will be data-dependent and made on a meeting-by-meeting basis, considering inflation outlook, economic and financial data, underlying inflation dynamics, and monetary policy transmission.
- PEPP portfolio reduction by €7.5 billion per month on average, with reinvestments to discontinue at the end of 2024.
- Flexibility in reinvesting PEPP redemptions will continue to counter risks to monetary policy transmission.
- Banks are repaying amounts borrowed under the targeted longer-term refinancing operations.
- The Governing Council will regularly assess how these operations and repayments contribute to the monetary policy stance.
EURUSD (H4)
In general, there is no signalling of any movement in rates in September, but this is still likely to be signalled before the September meeting itself. EURUSD is muted during the Largarde conference. The currency rate remains at high levels after the USD weakened in recent days.
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