Reading the ECB — a measured path toward a 2% deposit rate

Markets and the Governing Council do not agree on the pace of easing, and that disagreement is the most important thing for euro savers to understand. Reading the ECB well means watching the data the Council watches — services inflation and unit labour costs — rather than the market's hopes.

The direction of travel is clear: policy rates are heading toward a neutral setting, which we think lands around a 2% deposit rate. The dispute is over speed, and the Council has been consistent that it will not declare victory prematurely.

The data the Council is watching

Services inflation. Stickier than goods and closely tied to wages, it is the variable most likely to keep the Council cautious.

Unit labour costs. As wage growth moderates and productivity recovers, the inflationary pulse from the labour market fades — the green light for further cuts.

For savers, the practical takeaway is that attractive deposit and short-bond yields will not vanish overnight; they will fade gradually. That argues for laddering terms now rather than waiting for a descent the Council has signalled it will take slowly.

We position for the path, not the destination — and the path, this cycle, rewards patience.

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This commentary is provided for information only and does not constitute investment, tax or legal advice. The value of investments and any income from them can fall as well as rise. Figures cited are illustrative for this prototype.