Abstract

At the European Central Bank's (ECB) pivotal policy meeting scheduled for October 17th, over 90% of economists predict a 25 basis point cut in the deposit rate to 3.25%, marking a significant shift in market sentiment. Only a few foresaw the possibility of this rate cut last month, primarily due to the recent decline in Eurozone inflation to below 2%, and ECB President Christine Lagarde's hint of action this month to support economic recovery. Economists also anticipate another rate reduction of the same magnitude in December to 3.00%, followed by two more cuts in the next quarter, bringing the rate down to 2.50%.

ECB Rate Cut Expectations Intensify

More than 90% of economists expect the ECB to lower the deposit rate by 25 basis points in October and December 2024, as Eurozone inflation is expected to fall more rapidly to 1.8%. This expectation contrasts with last month's prediction by only about 12% of economists.

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Policy Context and Reasons

ECB President Christine Lagarde hinted that with inflation falling below 2%, she would consider adjusting rates at the upcoming monetary policy meeting and expects inflation to return to target levels in the next quarter. This decision is based on changes in market expectations for the economic outlook and inflation.

Economist Opinions and Forecasts

A survey shows that over 90% (70 out of 75) economists predict a rate cut to 3.25% in October, while 68 believe it will further drop to 3.00% in December. Additionally, 41 economists forecast two more cuts to 2.50% by the first quarter of next year, indicating a consensus on waning inflationary pressures and lower-than-expected economic growth.

Economic Outlook and Risks

Although core inflation is expected to gradually slow down in the future, Germany, the largest economy in the Eurozone, still faces the risk of growth stagnation following a contraction in the second quarter. Overall, the economic growth expectations for 2025 and 2026 are 1.2% and 1.4%, respectively, demonstrating confidence in the economy's continued stable growth.