ECB to Lower Rates in Sept and Dec as Inflation Refuses to Budge

• The European Central Bank will cut its deposit rate twice more this year, in September and December, according to an over-80% majority of economists polled by Reuters, fewer reductions than markets currently expect.
• Since April, economists in Reuters surveys have remained consistent in predicting a total of three cuts this year, including the one already delivered in June. By contrast, interest rate futures are pricing a total of four cuts by end-year.
• An unexpected rise in euro zone inflation in July, near record-low unemployment and still-steady economic activity in the common currency bloc give ECB policymakers cause to be cautious.
• Over 80% of economists, according to a Reuters poll, predicted that the ECB's Governing Council would deliver two more 25 basis point rate cuts this year, in September and December, taking the deposit rate to 3.25%. Importantly, the majority of forecasters looking for two more ECB rate cuts this year has held steady despite financial market volatility earlier this month.
• Euro zone inflation, which unexpectedly rose to 2.6% last month from 2.5% in June, will average 2.4% this year, the poll showed, and not reach the ECB's 2% target until the second half of 2025. That outlook was slightly more optimistic than projections the ECB made in June, but some are bracing for the central bank's staff projections to worsen in September.
• The central bank is expected to reduce the deposit rate four times next year, according to poll medians, reaching 2.25% by end-2025.

(Source: Reuters)