Societe Generale’s Anatoli Anenkov expects no policy change at next week’s European Central Bank (ECB) meeting, with the central bank reiterating its data-dependent, meeting-by-meeting approach. Recent Euro Area data, including Germany and France, have not significantly altered the outlook. Anenkov sees a September hike as possible and broadly neutral, but is less convinced about further tightening beyond that.

ECB stance, recession risks, September hike

"No policy change is expected at next week’s meeting, with the ECB likely to reiterate the data-dependent, meeting-by-meeting approach. Recent data have done little to alter the outlook, although we now assess the risk of technical recessions in Germany and France this year as lower. Despite renewed tensions in the Gulf, the milder June forecast scenario still seems to hold."

"This keeps the door open for further hike in September, as fully priced by the markets, although we are less convinced about additional tightening beyond that. A September hike would keep the policy stance broadly neutral while avoiding a delayed policy response, allowing time to assess the extent of indirect and second-round wage effects later this year."

"Based on current data, the ECB may need to reduce its headline inflation forecast for this year due to lower energy prices, while growth could also be weaker this year, due to volatile Irish data. Upside risk to inflation has moderated but uncertainty remains high."

"As those effects may only appear with a lag, waiting for clear evidence might leave the ECB behind the curve. The trigger for action is thus mainly found in the forecasts and scenarios – forcing a decision on precautionary, or pre-emptive (or risk-based?), grounds rather than on realised data."

"Judging whether the June hike, and potentially a September hike, proves ‘correct’ or not is thus difficult at this stage as we don’t yet know the extent of the non-linear indirect and second-round effects (this is obviously further complicated by the difficulty in determining whether future data will be affected by today’s policy changes)."

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