The European Central Bank (ECB) is expected to slash the euro zone’s deposit rate by 25 basis points (bps) within this month and possibly in December after September inflation dipped below 2% hinting at a slowing economy in the backdrop.
More than 90% of economists, 70 of 75, polled by Reuters from Oct 2-8 projected the rate cut in October by 25bps, lowering the bank rate to 3.25%. Before the Octobter poll, only 12% of the economists polled in September had predicted a rate cut.
According to 68 of 75 economists, ECB will cut the euro zone rate again to 3% in December, in line with market pricing.
Several governing council members, including ECB President Christine Lagarde, have hinted a reduction was coming this month.
“The latest developments strengthen our confidence that inflation will return to target promptly,” Lagarde told a European Union (EU) parliamentary hearing last week. “We will take that into account in our next monetary policy meeting in October.”
Inflation in the common currency bloc, which declined to 1.8% in September, is expected to pick up a little to be at par with the ECB’s 2% target next quarter and stay around there until at least 2027.
Despite recent statistics of the Purchasing Managers’ Index (PMI) indicative of an economic slowdown, the outlook of the euro zone economy is positive and expected to grow at a decent pace over the coming year.
The PMI is an indicator of the prevailing direction of economic trends in the manufacturing and service sectors.
The euro zone economy will grow on average 0.7% this year, before expanding by 1.2% in 2025 and 1.4% in 2026, according to the economic poll by Reuters.
However, economic growth in Germany, Europe’s largest economy, will grow 0.8% and 1.3% in 2025 and 2026, respectively.
