Will the next ECB rate cut be in December? What analysts think and why there is a hint from Lagarde on this forecast.
With the September ECB meeting archived, investors are already looking ahead to the next meetings.
When will the third interest rate cut be made? This is the question that is shaking up the financial markets and crowding analysts’ forecasts. Christine Lagarde has not resolved the doubt about the next moves, insisting on the formula of dependence on data and decisions taken meeting by meeting.
However, an unexpected signal from the president of the Eurotower arrived a day late. Speaking at the meeting of euro area finance officials in Budapest, Lagarde said that the ECB is open to considering an interest rate cut in October if the economy were to suffer a significant setback, even if the next full set of information will be available only at the next meeting. So is December the right month for a further drop in the cost of money?
ECB, next rate cut in December? What Lagarde Said Lagarde’s latest comments, coming less than a day after the second quarter-point cut in the deposit rate, are the clearest signal yet that policymakers are willing to wait until December for the next move.
Analysts have said it would take a very significant deterioration in the eurozone’s growth outlook or aggressive easing by the Federal Reserve to move away from a quarterly rate cut. By that approach, December is the best month for further easing, when more data is available, just as Lagarde has stressed.
ECB officials speaking the day after the meeting were cautious in signaling the next steps.
French President Francois Villeroy de Galhau said policymakers should continue to gradually cut rates.
“The pace has to be highly pragmatic,” he said. “We are not committing in advance to any particular pricing path.”
After easing monetary policy twice, in June and September, the ECB is responding to the latest decline in inflation that has brought the price index closer to 2%. While some are wary of persistent price pressures in the services sector, other officials worry that the eurozone’s struggling economy could lead to below-target inflation, as it did before the pandemic. That’s why all options are open in October, as they were in December.
ECB rate cuts: what do analysts expect?
Experts’ views on the ECB’s next moves are mixed.
Bill Diviney, head of macroeconomic research at ABN Amro, notes that the ECB is keeping its options open for another rate cut in October. The economist points out that several upcoming economic reports, such as September inflation data and eurozone PMIs, could influence the next rate decision.
Diviney expects “further 25 basis point cuts at each of the October and December meetings” if the data is in line with these expectations.
Carsten Brzeski, global head of macroeconomics at ING Group, suggests instead that the next cut is unlikely in October and possible in December. Brzeski also notes that despite the possibility of “some hesitation,” the ECB may eventually have to adopt more aggressive cuts, but not before 2025.
Lagarde’s confidence in the ECB’s inflation forecasts, which estimate it will hit its 2% target by the end of 2025, justifies further rate cuts in the long run, according to Roberto Coco, chief strategist at BBVA Madrid, but he does not foresee a rapid, mechanical reduction at every meeting. He foresees an “accommodative pause” in October, followed by another cut in December.
Goldman Sachs economist Sven Jari Stehn says moderate growth, further gains in core inflation, and cooling of wage growth will likely lead to a third 25 basis point rate cut in December.
Original article published on Money.it Italy 2024-09-13 15:37:11. Original title: Bce, perché il prossimo taglio dei tassi ci sarà a dicembre
