ECB policymakers seek interest rate cuts in October

Several policymakers of the European Central Bank (ECB) expressed this week that they want another interest rate cut at the next ECB meeting, which will be held on Thursday, October 17, despite concerns from their colleagues about turmoil in the Middle East that is driving energy cost instability.

The central bank has already cut interest rates twice this year, and a reduction in the deposit rate to 3.5 percent is almost guaranteed at next week’s meeting. Investors expect the bank to accelerate the pace of easing given the weak economy and unexpectedly rapid slowdown in inflation.

– Cutting interest rates is very likely, and it will not be the last as the pace of easing depends on how the fight against inflation develops – said the head of the French central bank Francois Villeroy de Galhau to the radio station franceinfo.

This message is fully in line with expectations as more than 90 percent of economists surveyed by Reuters predict a cut next week, and almost the same number expect another rate cut in December.

– Even if we have one cut of 25 basis points now and another in December, we will return to just three percent, which is still in a highly restrictive area – added the head of the Greek central bank Yannis Stournaras to the Financial Times.

Finn Olli Rehn, Latvian Martins Kazaks, and Portuguese Mario Centeno have advocated for a cut in October, while ECB President Christine Lagarde hinted that a cut could occur this month, thereby strengthening market conviction. The problem is that the economy has stagnated for most of last year, the labor market is loose, wage growth is slowing, and inflation has fallen faster than the ECB had predicted.

However, some are still hesitant, as the head of the Belgian central bank Pierre Wunsch claims that current market data shows weak growth, still too rapid inflation, and strong geopolitical tensions that are increasing energy costs, so they should proceed with caution.

– Is there anything that makes us absolutely have to talk about rate cuts in October? I would really like to see the central bank’s full analysis – Wunsch said to the Belgian newspaper l’Echo.

Investors now claim that the ECB’s deposit rate will fall to three percent by the end of the year and to two percent by the end of 2025. In other words, they predict a ‘neutral rate’, which is a level that neither stimulates nor slows down economic growth.