The ECB also reduced the remuneration of minimum reserves to 0% – due to their small size, this is unlikely to impact the policy stance and market rates. This shows that the ECB is sensitive to the losses generated by so much excess reserves. We think the theme of reducing losses will continue next year, via ramped-up QT.
The ECB hiked rates by another 25 bps, as signalled in June, taking the deposit rate to 3.75%. Instead of signalling any particular action in September (apart from ruling out rate cuts), ECB action at the coming meetings will now be fully data-dependent, implying that rates may still rise after a pause.
We still see room for one more rate hike before core inflation turns definitively downwards, but the latest weakening in the flow of economic data also suggests that the September decision will be a tight call.
The ECB delivered a 25 bps rate hike as expected. Economists at Société Générale expect one more 25 bps hike from the ECB in September.