ING Previews Next Week's ECB Policy Meeting

11:39 AM EDT, 09/03/2025 (MT Newswires) -- With a large number of European Central Bank officials having returned from the summer break with rather hawkish comments, ING said it's folding and expects the ECB to stay on hold at next week's policy meeting.

Still, an ECB rate cut next week or later this year shouldn't be entirely ruled out, wrote the bank in a note.

Next week's ECB meeting comes after the vote of confidence on Monday in the French parliament. ING won't speculate on the outcome of this vote, but the latest economic and political developments in France could become a matter of concern for the ECB as well.

Not so much regarding the interest rate decision, but rather potential ECB support in the event of surging French bond yields, wrote the bank in a note to clients.

In turn, the ECB press conference could be more delicate than usual as President Christine Lagarde needs to avoid repeating her 2020 mistake of casting doubt about her 'whatever it takes' ambitions, while at the same time emphasizing that ECB support cannot be taken for granted, added ING.

In fact, Lagarde will have to stress that the Transmission Protection Instrument (TPI) can only be activated for countries that actually comply with European fiscal rules or are at least following the given adjustment paths -- a condition France currently doesn't fulfil.

To be sure, the ECB has some leeway, according to the bank. The ECB stated in its TPI document that "the criteria will be an input into the Governing Council's decision-making and will be dynamically adjusted to the unfolding risks and conditions to be addressed," but it seems very unlikely that it will give France a free pass upfront. Almost 10 years ago, when asked why France had received more leeway on adhering to the fiscal rules, former European Commission President Jean-Claude Juncker answered, "because it's France." Investors are unlikely to see Lagarde repeating such an answer when it comes to TPI.

All in all, the discussion at next week's ECB meeting looks set to be more "controversial" than markets are currently pricing in. For ING, next week's meeting is an example that central bank watchers sometimes need to distinguish between what a central bank should do and what it will do. While ING still has some sympathy for another, rather preemptive, rate cut to avoid unwarranted euro strengthening and inflation undershooting, the bank also sees a majority at the ECB not sharing this view and instead stressing signs of resilience and recent hard data.

The ECB currently doesn't look willing to leave its 'good place', though a rate cut later this year should still not be ruled out, notd ING.

MT Newswires does not provide investment advice. Unauthorized reproduction is strictly prohibited.