The meeting was highly anticipated. Its result was in line with expectations. After the reduction in key rates on June 6, which reversed a long process of monetary tightening, the European Central Bank (ECB) made a second move on September 12.
The Governing Council unanimously decided to cut the deposit facility rate by a further 25 basis points to 3.5%. The decision was motivated by the favourable trend in inflation. The ECB notes that inflation is trending downward and still expects it to return to the 2% target before the end of next year.
However, the statement issued by the Governing Council continues to urge caution. It reiterates that its next decisions will be taken “data-driven”, “meeting by meeting”, and that it “does not commit in advance to a particular rate path”.
The President, Christine Lagardeeven observed during his press conference that the next meeting was quite close (October 17), which suggests that there will not be enough data by then for the ECB to be able to make a new move.
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The slowdown in inflation anticipated in September could be short-lived. The ECB is still counting on a 2.5% increase this year.
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New forecasts
A caution dictated by the still high level of underlying inflation, the increase in prices in services having been stronger than expected in August. The ECB has therefore revised slightly upwards its forecasts on underlying inflation (+0.1 point), which would amount to 2.9% this year and 2.3% in 2025.
Regarding overall inflation, its forecasts remain unchanged, namely 2.5% this year, 2.2% in 2025 and 1.9% in 2026. This gradual decline should be achieved thanks to the deceleration of wages in the second quarter and the fall in inflation expectations, which are theoretically the main drivers of the rise in prices in the medium term.
Regarding growth, the ECB’s scenario is only slightly amended. Given a slightly weaker than expected domestic demand (consumption and investment), the forecasts are revised downwards by 0.1 percentage points for this year and the next two (to 0.8%, 1.3% and 1.5%, respectively).
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Given weak growth in Europe, the central bank is likely to cut rates by 0.25 basis points at each meeting, it estimates. Alexandre Hezezstrategist of the Richelieu Groupwhich anticipates two more declines before the end of the year.
More cautious, his counterpart LBP Asset Management, Xavier Chapardspecifies that such a scenario would be justified in the event of the absence of recovery in the eurozone or a rapid easing of price tensions in services. Which does not seem, according to him, very likely.
The expert thinks that the ECB will wait until the December meeting to act again, the time to be able to be better informed about the evolution of wages and growth. Especially since, by the admission of Christine Lagardethe sharp slowdown in inflation expected in September (it could even fall below 2%) will only be temporary.
Because it largely comes from the previous sharp declines in energy prices. LBP Asset Management then expects rate cuts of 25 basis points per quarter until the end of next year.
