"As expected, the European Central Bank (ECB) left its key interest rates unchanged today. ECB President Lagarde reiterated that key rates must remain at their current high levels in order to achieve the medium-term inflation target of 2 percent. In the run-up to the meeting, there had been some speculation as to whether the ECB would also consider faster rate cuts, as the market had priced in, mainly due to the change in communication from the US Federal Reserve. This was clearly rejected: rate cuts were not discussed."

"It is true that the ECB has significantly lowered its inflation forecasts in particular. In principle, the inflation target of two per cent will now be reached more quickly. At the same time, however, it made clear that domestic price pressures in particular remain high: The labour market is stable, wages are rising and unit labour costs in particular have recently increased further. Moreover, the projection, and hence the achievement of the inflation target, was calculated on the basis of higher yields. The cut-off date for the forecasts was 23 November 2023. All in all, although there has been clear progress in the disinflation process, it is far too early to declare victory over inflation. This is also our view. However, given the fragile economic outlook, it should also be clear that expectations of rate cuts remain strong. We still expect a first rate cut in June 2024."

"The ECB is also planning further normalization of its balance sheet. However, the reduction in PEPP reinvestments will be much slower than we had expected, but they will remain an important backstop in the event of market stress, especially in the first half of the year 2024."