While the ECB's rate cut this morning was not in doubt by anyone, and the ECB did not disappoint, cutting rates for the 6th time in a row by 25bps across the board (Deposit rate to 2.5% from 2.75%; Refinancing Rate to 2.65% from 2.90%, marginal lending to 2.60% from 2.85%)...

.... what everyone was focusing on was whether the ECB would use the word "restrictive" in the statement. And while it did use it, here is what it said: "Monetary policy is becoming meaningfully less restrictive, as the interest rate cuts are making new borrowing less expensive for firms and households and loan growth is picking up." True, but one wonders just how restrictive fiscal policy is becoming now that European interest rates are exploding higher at the fastest pace since covid, we'll find out soon enough. The ECB also said that "a headwind to the easing of financing conditions comes from past interest rate hikes still transmitting to the stock of credit, and lending remains subdued overall." As a result, the economy faces continued challenges "and staff have again marked down their growth projections – to 0.9% for 2025, 1.2% for 2026 and 1.3% for 2027. The downward revisions for 2025 and 2026 reflect lower exports and ongoing weakness in investment, in part originating from high trade policy uncertainty as well as broader policy uncertainty." Meanwhile, rising real incomes and the gradually fading effects of past rate hikes remain the key drivers underpinning the expected pick-up in demand over time.

Commenting on its policy stance, the ECB said the following:

• Monetary policy is becoming meaningfully less restrictive (previously it said "monetary policy remains restrictive")
• ECB will follow a data-dependent and meeting-by-meeting approach to determining the appropriate monetary policy stance.
• In particular, rate decisions will be based on its assessment of the inflation outlook in light of the incoming economic and financial data, the dynamics of underlying inflation and the strength of monetary policy transmission.
• Governing Council is not pre-committing to a particular rate path.

And here is what it said about inflation:

• Governing Council is determined to ensure that inflation stabilises sustainably at its 2% medium-term target, especially in current conditions of rising uncertainty.
• Domestic inflation remains high, mostly because wages and prices in certain sectors are still adjusting to the past inflation surge with a substantial delay.  
• But wage growth is moderating as expected, and profits are partially buffering the impact on inflation.

The ECB delivered the following forecast, cutting 2025 and 2026 GDP, lowering 2025 core inflation while raising 2025 headline inflation. Here are the details starting with HICP inflation:

• 2025: 2.3% (prev. 2.1%)
• 2026: 1.9% (prev. 1.9%)
• 2027: 2.0% (prev. 2.1%)

HICP Core inflation (ex-energy and food)

• 2025: 2.2% (prev. 2.3%)
• 2026: 2.0% (prev. 1.9%)
• 2027: 1.9% (prev. 1.9%)

GDP:

• 2025: 0.9% (prev. 1.1%)
• 2026: 1.2% (prev. 1.4%)
• 2027: 1.3% (prev. 1.3%)

And the visual summary for inflation:

This is what the ECB said about inflation:

Most measures of underlying inflation suggest that inflation will settle at around the Governing Council’s 2% medium-term target on a sustained basis. Domestic inflation remains high, mostly because wages and prices in certain sectors are still adjusting to the past inflation surge with a substantial delay. But wage growth is moderating as expected, and profits are partially buffering the impact on inflation.

Aside from a modest kneejerk reaction, the market was not surprise: as expected and priced, the ECB cut its policy rates by 25bps taking the deposit rate to 2.50% but as noted above, the most pertinent update was the adjustment to language around restrictiveness, with the ECB now saying "monetary policy is becoming meaningfully less restrictive” (prev. “monetary policy remains restrictive”), a tweak which some say opens the door to a pause in the easing cycle, something the likes of Schnabel have flagged in recent weeks, hence the initial hawkish reaction which sent the EURUSD to session highs of 1.082

Given this, traders will be keenly awaiting the press conference from Lagarde for insight into the discussion around the future path for policy, the statement itself maintained a data-dependent and meeting- by-meeting approach.

Today's statement aside, also look for Lagarde's views on the recent German fiscal announcements, EU proposals/reports and the significant market reaction to these events and what impact Lagarde thinks it has on their path ahead.

One thing is certain: monetary policy may be becoming "meaningfully less restrictive" but the explosive move higher in yields across Europe just made fiscal policy the most restrictive it has been in years.