Synopsis:

Danske anticipates a 25bp rate cut by the ECB at its September 12 meeting, with a cautious outlook and a flexible approach to future rate adjustments.

Key Points:

1. Rate Cut Anticipation:

   • Expected Move: The ECB is expected to cut rates by 25bp. This decision is supported by recent moderation in the labor market and economic activity since the June meeting, which aligns with the ongoing disinflationary trend and slowdown in wage growth.

2. Policy Guidance:

   • Approach to Future Cuts: ECB President Christine Lagarde is expected to signal a shift towards a more measured approach but without committing to specific timing for additional rate cuts. The ECB is likely to maintain a meeting-by-meeting, data-dependent stance, preserving flexibility in its policy guidance.

3. Projections and Focus:

   • Staff Projections: The updated September staff projections are anticipated to be largely unchanged. Key areas of focus will include projections on wages, productivity, and inflation to assess the applicability of 'Lane’s formula' in guiding future policy.

Conclusion:

Danske forecasts a 25bp rate cut by the ECB, with a cautious and flexible approach to future adjustments. Market attention will be on updated projections and how they influence the ECB's policy stance moving forward.