BREAKING: EURUSD declines slightly after ECB minutes 📌

The European Central Bank (ECB) emphasized a cautious approach in its monetary policy to ensure inflation returns to its 2% target, projected for the first half of 2025. Despite some members advocating for a larger 50 basis points rate cut, the Governing Council agreed on a 25 basis points reduction, reflecting gradual progress toward disinflation. The Council highlighted uncertainties, including domestic and global risks, which could delay inflation reduction. It maintained that the current restrictive stance would be adjusted gradually as data confirms disinflation's trajectory, emphasizing the importance of remaining vigilant against both upside and downside risks to inflation.

The ECB noted structural factors limiting economic growth, which monetary policy alone cannot resolve, emphasizing the role of governments in addressing these issues. The decision to reduce the three key ECB rates aligns with the need for data-driven and adaptable policies. Communication updates were made to remove a tightening bias, signaling a balanced and responsive approach. Members also endorsed changes in balance sheet normalization, including the cessation of PEPP reinvestments by the end of 2024 and the repayment of targeted longer-term refinancing operations, marking progress in policy normalization.

Key Points:

1. Inflation Outlook:

   • Inflation projected to return to 2% by the first half of 2025.

   • Current projections indicate disinflation is on track, with risks still present.

2. Monetary Policy Decisions:

   • 25 basis points rate cut agreed, despite some members advocating for 50 basis points.

   • Gradual reduction in policy restrictiveness aligned with incoming data.

3. Risks and Uncertainties:

   • Domestic and global risks (e.g., US policies, energy prices) could affect inflation trajectory.

   • Structural economic factors limiting growth remain beyond monetary policy's scope.

4. Policy Communication:

   • Tightening bias removed; communication now emphasizes balanced adaptability.

   • ECB reaffirms commitment to maintaining price stability as its single mandate.

5. Balance Sheet Adjustments:

   • PEPP reinvestments to end by December 2024.

   • Targeted longer-term refinancing operations to be repaid, continuing normalization.