The European Central Bank delivered on the well-telegraphed 25bp cut on Thursday, taking the deposit rate to 3.75% from a record 4%. This was characterised as a step to “moderate the degree of monetary policy restriction after nine months of holding rates steady” rather than to defend growth/ recession risks. Moreover, this also marks a departure from the past for moving at a different beat from the US Fed, with the timing of the latter’s start of rate cut cycle still uncertain at this juncture. Guidance was non-committal, with plans to keep policy conditions “sufficiently restrictive for as long as necessary”, aimed at anchoring near and medium-term inflationary expectations.
Quarterly staff projections backed the decision to not commit to a set policy path. ECB staff raised their annual average headline inflation outlook for 2024 to 2.5% from 2.3% previously and 2025 to 2.2% from 2%. The 2026 projection remained at 1.9%. Economic growth is expected to pick up to 0.9% (DBSf 0.8%) in 2024 vs 0.5% in 2023, 1.4% (DBSf 1.2%) in 2025 and 1.6% in 2026. The year-to-date momentum backs the upward revision in inflation forecasts. In the first five months of the year, HICP inflation has averaged 2.6% vs 5.5% last year, with core down at 3% 5MY24 vs 5% in 2023. There is likely to be some unease in the Governing Council on premature rate cuts, as core inflation ticked up in May from 2.7% yoy to 2.9% alongside the recent increase in wage growth and positive momentum in activity indicators. Assuming growth gradually returns to its potential rate and headline inflation inches back towards the target, we retain our call for a modest cut each in 3Q and 4Q, when quarterly staff projections are released. The bar to go slow on the policy easing is nonetheless low, especially if the inflation surprises to the upside on any exogenous supply shocks or on strong wage growth, risks of which are contained at this stage.
Topic
Explore more
E & S Macro StrategyThe information herein is published by DBS Bank Ltd and/or DBS Bank (Hong Kong) Limited (each and/or collectively, the “Company”). This report is intended for “Accredited Investors” and “Institutional Investors” (defined under the Financial Advisers Act and Securities and Futures Act of Singapore, and their subsidiary legislation), as well as “Professional Investors” (defined under the Securities and Futures Ordinance of Hong Kong) only. It is based on information obtained from sources believed to be reliable, but the Company does not make any representation or warranty, express or implied, as to its accuracy, completeness, timeliness or correctness for any particular purpose. Opinions expressed are subject to change without notice. This research is prepared for general circulation. Any recommendation contained herein does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. The information herein is published for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate legal or financial advice. The Company, or any of its related companies or any individuals connected with the group accepts no liability for any direct, special, indirect, consequential, incidental damages or any other loss or damages of any kind arising from any use of the information herein (including any error, omission or misstatement herein, negligent or otherwise) or further communication thereof, even if the Company or any other person has been advised of the possibility thereof. The information herein is not to be construed as an offer or a solicitation of an offer to buy or sell any securities, futures, options or other financial instruments or to provide any investment advice or services. The Company and its associates, their directors, officers and/or employees may have positions or other interests in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and other banking or financial services for these companies. The information herein is not directed to, or intended for distribution to or use by, any person or entity that is a citizen or resident of or located in any locality, state, country, or other jurisdiction (including but not limited to citizens or residents of the United States of America) where such distribution, publication, availability or use would be contrary to law or regulation. The information is not an offer to sell or the solicitation of an offer to buy any security in any jurisdiction (including but not limited to the United States of America) where such an offer or solicitation would be contrary to law or regulation.
This report is distributed in Singapore by DBS Bank Ltd (Company Regn. No. 196800306E) which is Exempt Financial Advisers as defined in the Financial Advisers Act and regulated by the Monetary Authority of Singapore. DBS Bank Ltd may distribute reports produced by its respective foreign entities, affiliates or other foreign research houses pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Singapore recipients should contact DBS Bank Ltd at 65-6878-8888 for matters arising from, or in connection with the report.
DBS Bank Ltd., 12 Marina Boulevard, Marina Bay Financial Centre Tower 3, Singapore 018982. Tel: 65-6878-8888. Company Registration No. 196800306E.
DBS Bank Ltd., Hong Kong Branch, a company incorporated in Singapore with limited liability. 18th Floor, The Center, 99 Queen’s Road Central, Central, Hong Kong SAR.
DBS Bank (Hong Kong) Limited, a company incorporated in Hong Kong with limited liability. 13th Floor One Island East, 18 Westlands Road, Quarry Bay, Hong Kong SAR
Virtual currencies are highly speculative digital "virtual commodities", and are not currencies. It is not a financial product approved by the Taiwan Financial Supervisory Commission, and the safeguards of the existing investor protection regime does not apply. The prices of virtual currencies may fluctuate greatly, and the investment risk is high. Before engaging in such transactions, the investor should carefully assess the risks, and seek its own independent advice.