MFS: New dovish tone to ECB statement after rate cut
Peter Goves, Global Head: DM Fixed Income Rates Strategy at MFS Investment Management, comments on today's ECB decision:
'As widely expected, the ECB cut its policy rate in a unanimous decision by 25bp to 3.25%. This remains based on a reaction function that includes the assessment of the inflation outlook, the dynamics of underlying inflation and the strength of monetary policy transmission.
A new, slightly dovish element was added to the opening paragraph of the initial statement: 'The incoming information on inflation shows that the disinflationary process is well on track. The inflation outlook is also affected by recent downside surprises in indicators of economic activity. Meanwhile, financing conditions remain restrictive'.
Given the weakness in the growth outlook, we continue to see market terminal rate pricing probably and slightly on the high side. Although there was little new in the statement or press conference to warrant sub-neutral rate pricing, ultimately we think this will be warranted to achieve inflation at target. This keeps us strategically constructive on euro area duration. Lagarde acknowledged that risks to growth remain tilted to the downside.'