Palladium/NZD

Ms Schnabel noted that, since the Governing Council’s previous monetary policy meeting on 16-17 October 2024, the narrative in financial markets had shifted as a result of rising trade and economic policy uncertainty. Investors had increasingly focused on the divergence in growth prospects between the euro area and the United States. This had manifested itself in a divergence of bond yield and equity price developments between the euro area and the United States, as well as a pronounced weakening of the euro against the US dollar. While the euro area near-term inflation outlook embedded in market pricing had shifted upwards, inflation compensation had declined over longer horizons. This had led investors to expect a frontloading of ECB rate cuts and a lower terminal rate. Owing to these expectations regarding the rate-cutting cycle, combined with the weakening of the euro exchange rate against the US dollar and still benign risk asset price constellations, financial conditions had loosened further. post: ECB ACCOUNTS: REGARDING THE INFLATION OUTLOOK, MEMBERS WERE INCREASINGLY CONFIDENT THAT INFLATION WOULD RETURN TO TARGET IN THE FIRST HALF OF 2025. post: ECB ACCOUNTS: IF THE BASELINE PROJECTION FOR INFLATION WAS CONFIRMED OVER THE NEXT FEW MONTHS AND QUARTERS, A GRADUAL DIALLING-BACK OF POLICY RESTRICTIVENESS WAS SEEN AS APPROPRIATE. post: ECB ACCOUNTS: MORE CHECK POINTS HAD TO BE PASSED TO ASCERTAIN WHETHER DISINFLATION REMAINED ON TRACK AND KEPT OPEN THE OPTIONALITY TO MAKE ADJUSTMENTS ALONG THE WAY. post: ECB ACCOUNTS: SOME MEMBERS NOTED THAT A CASE COULD BE MADE FOR A 50 BPS RATE CUT AT THE CURRENT MEETING AND WOULD HAVE FAVOURED MORE CONSIDERATION BEING GIVEN TO THE POSSIBILITY OF SUCH A LARGER CUT.