The chorus of those who anticipate something new is increasingly growing interest rate cut by the ECB in October. The governor of the Banque de France mentioned the surprising inflation falling below target by 2%, while the economic head of the ECB Philip Lanelike my colleague Schnabel last week, spoke of inflation fell more rapidly than expected and now very close to the central bank’s target.
The ECB will meet again next week, Thursday 17 Octoberbut this time the meeting will be hosted by the Slovenian central bank, not in Frankfurt as usual. During the September meeting, rates were reduced by 25 points on deposits and the repo rate by 60 points.
Lane confirms: 2% target close
For Eurotower chief economist Philip Lane, the monetary policy proved to be “effective” and inflation “has fallen very rapidly” and “many indicators are giving reassuring signals”. The disinflation process – the banker specified – proceeds “faster than expected” and “it won’t take long for it to reach the medium-term target” of 2%.
Villeroy: “Probable rate cut in October”
For the governor of the Banque de France, Francois Villeroy de Galhauan ex-officio member of the ECB’s governing council, said a cut in interest rates at the October meeting was “very likely” as inflation “he surprised us again with a low price”falling below the 2% target in September.
While recalling that core inflation is still at 2.7% and services inflation is more sticky at 4%, the banker said he was confident that core inflation should also gradually decrease and get closer to the 2% target next year . The markets expect even lower values: for 2025 they predict inflation below 1.8%“.
“This means the balance of risks is shifting. – underlined Villeroy – In the last two years the risk we have run is that of a overshoot compared to our target of 2%. Now we must be careful of the opposite risk, so as not to miss our objective in the face of weak growth and one restrictive monetary policy for too long“.
What to expect next week
For BNP Paribas analysts “the ECB will cut policy rates by 25 bps at its meeting on 17 October for risk management reasons”, as “recent data indicate an increased risk of a more marked deterioration in economic activity in the Eurozone, while the short-term inflation outlook appears positive”. According to the investment bank there will then be a another rate cut in December and then, in 2025, with quarterly interventions, for this reason the expectation on rates at the end of 2025 was reduced from 2.50% to 2.25%, within the range of neutral estimates.
For the experts at T. Rowe Price, this morning’s data on orders in Germanywhich fell by 5.9% in August, “certainly strengthen the current vision of German economic weakness and support the ECB governing body’s desire to cut the key rate in October.” “The financial markets – it is underlined – will continue to be worried about the prospect of a Deeper German recessionas long as this uncertainty persists. This is the reason for the sales on the euro and the rise of the Bund”.
