LIVE MARKETS-How inflation forecasts can embolden the ECB doves

Welcome to the home for real-time coverage of markets brought to you by Reuters reporters. You can share your thoughts with us at markets.research@thomsonreuters.com

HOW INFLATION FORECASTS CAN EMBOLDEN THE ECB DOVES

Markets expect ECB rates to stay unchanged through 2027, but analysts see risks skewed to the dovish side and will zero in on inflation forecasts, including 2028 projections to be unveiled at the next policy meeting.

Even the doves argued that a cut would be conditional on a deterioration of the outlook, so we assume “that all Governing Council members agree that 2% is a reasonable landing spot for the policy rate,” says Paul Hollingsworth, head of developed markets economics at BNP Paribas, referring to the ECB account released last week.

However, “the reference to the undershooting (risk for inflation) is likely a signal that there would be a low tolerance for a sub-2% forecast in 2028 amongst the doves, and such the December forecast could either re-ignite the debate or quash it, depending on which way it lands,” he adds.

A downward revision of the 2026 and 2027 inflation forecasts could have a similar impact, analysts said.

The ECB will release its initial 2028 projections on December 18, but some played down these numbers, arguing that the information content of more distant horizons had more limited value.

Money markets reflect only a small chance, well below 50%, of a rate cut next summer, with the key rate projected to stay at around 2% into 2027.

(Stefano Rebaudo)

EARLIER ON LIVE MARKETS:

BANKS AND BAYER LEND SUPPORT CLICK HERE

BEFORE THE BELL: FUTURES STEADY, FOCUS ON BAYER, STOXX RESHUFFLE CLICK HERE

AUCTION BID STEADIES JAPAN BOND SLIDE CLICK HERE