At next week’s ECB meeting on 17 October we expect the ECB to deliver yet another rate cut of 25bp, bringing the deposit rate to 3.25%. Weaker-than-anticipated growth indicators, as well as a decline in inflation, support the case for another rate cut from the ECB.
Since the US labour market report last week, markets have significantly repriced expectations for policy easing across central banks, not least the ECB. Markets are now discounting an additional 47bp of rate cuts this year, consistent with a rate cut next week and again in December, and 97bp of rate cuts next year, consistent with our baseline of quarterly rate cuts of 25bp each.
We expect very limited forward guidance at the upcoming meeting, meaning the ECB should stick to the ‘meeting by meeting’ and ‘data dependent’ approach that it has been following in the past few quarters. Ahead of the December meeting, where it will give new staff projections, including the 2027 projection, we are set to see very important data points from the euro area (2x PMIs, 2x inflation, wage data, labour data).
