My ECB-ometer forecasts the monthly policy decisions of the European Central Bank based on 12 economic and financial inputs. The output is in the form of a projected interest rate change and may be thought of as the average recommendation of the 21 Governing Council members. Since the ECB moves official rates in quarter-point steps, a forecast of above +0.125% or below -0.125% is needed to generate a prediction of a policy change. The chart below shows historical performance.

Last month the model forecast was -0.10% – above the trigger level for a rate cut but suggesting economic and financial developments warranted an easing bias. There was no hint of any such bias in the policy statement delivered at last month’s press conference, which repeated the mantra about upside risks to price stability and a need to “monitor very closely all developments”.

This month the forecast has risen to -0.05%, implying economic and financial conditions are slightly less conducive to an early cut but still argue for some easing of the policy stance relative to recent ECB statements. The change since last month is mainly due to a further rise in inflation.

While there is little prospect of a cut next week, some adjustment to the policy statement is possible, involving a reference to increasing downside risks to growth to balance upside inflation risks. Barring such an adjustment, a reduction in rates in May, as suggested earlier, looks unlikely.