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2025-10-30 21:21:09
[ECB Holds Rates Steady, But Hints at a Cut] ⑴ The European Central Bank (ECB) kept its three benchmark interest rates unchanged on Thursday, with the deposit facility rate remaining at 2%, marking the fifth consecutive day of no change. The money market had already priced in this decision, with overnight implied volatility in swap contracts falling to a two-week low. ⑵ The ECB statement said inflation "remains close to the 2% medium-term target," and the economy "continues to grow in a challenging global environment," reiterating that it makes no pre-commitments and that the future path depends entirely on data. ⑶ Data compiled by institutions showed that the Eurozone's composite PMI rose to 52.1 in October, a three-month high, and Germany's ZEW expectations index rebounded for the second consecutive month to +21, supporting the ECB's assessment that its current stance is appropriate. ⑷ However, German industrial output fell another 1.2% month-on-month in August, and exports to the US have declined by 9% year-to-date. Some members of the ECB are concerned about the risk of a "double-dip" deflation, and the market is betting on a nearly 50% probability of another 40-50 basis point rate cut before next summer. (5) The hawkish camp argues that Germany's planned additional defense and infrastructure spending could exceed 1% of GDP, enough to boost potential growth and prices. If the fiscal multiplier materializes in 2026, swap pricing is expected to be significantly revised. Investors are holding their breath awaiting Lagarde's press conference at 22:45 Beijing time for any possible adjustments to her wording.
