ECB March 2025 Post-Mortem: Blessed are the bond vigilantes

To summarize:

• The ECB cut all three rates by 25bps as expected. Deposit rate to 2.50 percent; main refinancing rate to 2.65 percent; and marginal lending rate to 2.90 percent. With effect with the start of the next maintenance period on March 12. And with no other changes in policy;
• The cut was modestly hawkish. Though there was no real forward guidance, the undertones suggest that there’s little life left in the rate cut cycle. I have penciled in a hold in April and a cut in June, and that will be the final cut for some time. With the risk being skewed to no cut in June;
• The ECB blessed the bond market sell-off because peripheral spreads did not widen. Furthermore, there was nothing that suggested that the ECB will accommodate easier fiscal policy. The two percent inflation target must be met;
• The ECB delayed hitting the two percent target to very early in 2026 from mid-2025 because of higher energy prices. At the same time, staff slightly cut their forecasts for underlying inflation this year;
• Staff did the obligatory downgrade of the growth forecast for this year.

Forecasts here

Opening statement here

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