ECB to cut rates by 25bps in both Oct and Dec as euro zone economy wobbles: Reuters poll

By Indradip Ghosh

BENGALURU (Reuters) – The European Central Bank (ECB) will cut its deposit rate by 25 basis points on Oct. 17 and again in December, according to more than 90% of economists polled by Reuters who now see a quicker decline in euro zone inflation.

Only 12% of economists polled last month had predicted an October cut. But most have swiftly changed their view to cuts in both October and December after September inflation dipped below 2% and some Governing Council members, including ECB President Christine Lagarde, hinted a reduction was coming this month.

“The latest developments strengthen our confidence that inflation will return to target in a timely manner,” Lagarde told a European Union parliamentary hearing last week. “We will take that into account in our next monetary policy meeting in October.”

For the last six months, economists predicted a total of three 25 basis point reductions in the deposit rate this year but are now expecting four.

Over 90% of economists, 70 of 75, said in an Oct. 2-8 Reuters poll they expected the ECB to cut the deposit rate for a second straight meeting by 25 basis points next week, taking it to 3.25%. Just five predicted no change. Last month, only around 12% of economists, or nine of 77, forecast an October cut.

The central bank will cut again to 3.00% in December, according to 68 of 75 economists, in line with market pricing.

“With fading inflation pressures, both on headline and core, we believe the ECB is going to be able to get back to somewhere near its neutral rate more quickly as it manages the accelerating downside risks to growth,” said James Rossiter, head of global macro strategy at TD Securities.

“With growth still below trend next year, this is enough for the ECB to cut steadily from October.”

INFLATION

The ECB doesn’t have a neutral rate estimate, which neither restrains or stimulates the economy, but staff published a paper this year showing a real rate of around zero – or about 2% in nominal terms – when adjusted for inflation.

An over-55% majority of economists, 41 of 72, predicted the ECB to cut twice next quarter, to 2.50%. The central bank will lower rates twice more later next year, the poll showed.  

That is a swifter path than was expected last month but in line with current market pricing.

Inflation in the common currency bloc, which declined to 1.8% last month, will pick up a little and be at the ECB’s 2% target next quarter and stay around there until at least 2027, the poll found. Economists last month expected inflation to be 2% later in 2025.

However, core inflation will remain elevated this quarter and average 2.7%, where it was in September, before slowing gradually next year.

“The closer the ECB moves its key interest rates to the neutral interest rate… the more vigorously the hawks in the ECB Governing Council are likely to argue against rapid interest rate cuts,” said Marco Wagner, senior economist at Commerzbank (ETR:CBKG).

“At the beginning of next year, core inflation is still likely to be around 2.75%, and the continued strong wage increases do not yet suggest that inflation, particularly in services, will slow noticeably in the coming months.”

Despite recent PMIs suggesting an economic slowdown the euro zone economy was expected to grow at a decent pace over the coming year.

The economy will grow 0.2% this quarter, matching Q2’s rate, and average 0.7% growth this year, the poll showed, before expanding by 1.2% in 2025 and 1.4% in 2026.

However, growth in Germany, Europe’s largest economy, stagnated last quarter after contracting 0.1% in Q2 and will expand 0.1% this quarter. It would grow 0.8% and 1.3% in 2025 and 2026, respectively.

(Other stories from the Reuters global economic poll)