Like its MPC counterpart, my ECB-ometer has shifted in a dovish direction over the last month. The model suggests a 33% probability of a cut in rates at tomorrow’s meeting, compared with a 55% chance of a hike last month – see chart.
The swing reflects a combination of: very weak business and consumer surveys; slower M3 growth; a fall in short-term bond yields; and the less hawkish policy statement issued after last month’s meeting. These factors have offset a further slight deterioration in inflation indicators.
The model is consistent with a peak in official rates but it will take several more months of data to confirm this scenario.
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