The ECB concluded its strategy assessment yesterday. The review does not suggest major changes in the conduct of monetary policy, nor in the communication of its policy decisions, Rabobank's Senior Macro Strategist Bas van Geffen reports.

Lower odds of rate cuts despite 2026 inflation undershoot

"The ECB confirmed its 2% inflation target. Policymakers will respond forcefully to large, sustained deviations from the target. However, the review arguably also allows for a little more tolerance for smaller divergences. Arguably, this lowers the odds that the ECB will respond to the expected inflation undershoot in 2026."

"Policy rates remain the main instrument, but the review suggests that the ECB will not exhaust this instrument before policymakers consider alternatives. If further easing is required, e.g., in response to an escalation of the trade war, this could lead to a policy mix where interest rates are not slashed to zero, but the ECB restarts QE instead."