Are Interest Rate Cuts from the ECB Looming in October?

Economists are now anticipating a 0.25% interest rate reduction from the European Central Bank (ECB) in October, moving away from prior predictions of a cut in December.

This change follows disappointing inflation figures from France and Spain, along with a decline in the Purchasing Managers’ Index (PMI), which dropped to 48.9 in September. The PMI’s decrease indicates a notable slowdown in business activity, creating a pressing need for further rate reductions.

As the ECB’s October 18 meeting approaches, bond markets have adjusted expectations, now indicating an 80% likelihood of a rate cut, up from 40%. Major financial institutions like Goldman Sachs and JPMorgan have updated their forecasts, suggesting cuts could occur in both October and December.

Paul Hollingsworth from BNP Paribas cautioned that delaying action could jeopardize the eurozone’s economic recovery. The ECB will present updated inflation and growth forecasts during its December meeting.

While ECB President Christine Lagarde remains cautious and insists on a data-driven strategy, insights from ECB Executive Board member Isabel Schnabel reveal that inflation expectations are decreasing, bolstering the argument for lower interest rates. Although ECB officials have yet to confirm the decision for October, they are increasingly aware of the mounting downside risks.