September 02, 2024 at 06:12AM
Well, this is a potential rift that could impact the rate cut debate in the months ahead. It is being reported that some policymakers are wanting to focus more on recession fears while others are more adamant on sticking it through the inflation battle.
A rate cut in September is pretty much locked in but what comes after might not be so certain it would seem.
The sources are saying that future decisions will likely be “more complicated” with private discussions revealing a divergence in views among policymakers.
The doves, who are said to be in the minority, are arguing that the economy is much weaker than thought. And that could accelerate a weakening in price pressures alongside a stronger downturn in the economy. Their take is that the ECB might be behind the curve in cutting rates in order to buffer the economy as such.
Meanwhile, the hawks are arguing that they must see things through until the inflation target is met. And that means even pushing any significant policy easing into 2026, as they fear not doing so might jeopardise the ECB’s credibility as well.
The sources add that September looks to be a done deal but expectations for October remain very much up in the air. One source also mentioned that “quarterly cuts serve us well and the data just doesn’t support picking up this pace”.
So, that might very well see Lagarde stick to more or less the same communique this month. That being the ECB’s approach is more of a “meeting by meeting” one, so as to not discard October but not confirm any back-to-back moves either.
This article was written by Justin Low at www.forexlive.com.
