BofA now expects the European Central Bank to cut rates at October meeting

Investing.com — The European Central Bank is now expected to slash interest rates at its October meeting, according to new estimates from analysts at Bank of America.

In a note to clients, the analysts pointed to comments on Monday from ECB President Christine Lagarde, who said that recent economic data had “strengthened” policymakers’ confidence that inflation will return to their 2% target level in a timely manner.

“We will take that into account in our next monetary policy meeting in October,” Lagarde noted.

The BofA analysts said that her language echoed similar justification that was used for a quarter-point rate cut in September, adding that it is “a quasi-clear ‘go’ for October, absent data surprises until then.”

Mixed inflation and economic activity figures out of the eurozone had earlier led the analysts to project that the ECB would skip an October rate drawdown.

Following the anticipated reduction this month, the BofA analysts are now predicting “back-to-back cuts of 25 basis points each,” taking the ECB’s crucial deposit facility rate down to 2% by June 2025 — a quarter earlier than their prior forecasts. The ECB steers monetary policy through the deposit rate.

They also see two additional quarterly cuts in September and December 2025, which would bring the terminal rate to 1.50% six months earlier than they previously projected.

“That is where we still differ from consensus (2.25% for end-[20]25 and 2.20% for 2026) and market pricing,” the analysts flagged.

At its last gathering in September, the ECB slashed rates for the second time in three months, as officials mulled sluggishness in the eurozone economy and fading inflationary pressures.

The deposit rate was lowered by 25 basis points to 3.5%. In July, the European Central Bank left the benchmark rate unchanged at 3.75%, after cutting it from an all-time high of 4% in the preceding month.

Speaking in a press conference at the time, Lagarde stressed that the central bank was not “committed” to a particular rate path and would remain data-dependent when making future policy moves.