ECB President preps market for October rate cut

Christine Lagarde gives her clearest hint yet of a rate cut in the upcoming October meeting
By Sam Bourgi
•
03 October 2024
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As inflation falls, European Central Bank (ECB) President Christine Lagarde has given her clearest hint yet of a rate cut this month.

“Disinflation has been accelerating over the last two months,” Lagarde said at a European Parliament meeting. “[T]he latest developments strengthen our confidence that inflation will return to target in a timely manner.”

“We will take that into account in our next monetary policy meeting in October,” she concluded.

The ECB’s Governing Council will hold its next meeting on Oct. 17.

Lagarde’s comments came as inflation continues to soften in Europe. In September, the eurozone Consumer Price Index (CPI) fell to a 1.8% annual rate—the lowest in more than three years.

Although Lagarde expects inflation to temporarily rebound in the fourth quarter, she said policymakers won’t wait for all price categories to fall to 2% before further reducing interest rates.

The eurozone’s core CPI edged down slightly to 2.7% in September, while the stubborn service inflation gauge eased to 4%.

As Creditnews reported, the ECB has already lowered interest rates twice this year—and there’s growing consensus for a third cut.

More rate cuts in the cards

Lagarde isn’t the only policymaker advocating for rate cuts. On Oct. 1, Finnish ECB official Olli Rehn said the inflation data justified much lower rates.

“Recent statistical data has provided further confirmation that inflation is slowing down. In my view, this means that there are now more reasons to justify a rate cut at our October meeting,” said Rehn, who serves as the Bank of Finland governor.

Economists are also growing more confident in additional rate cuts in the final quarter of the year.

“The time for gradualism is over: today’s eurozone inflation release paves the way for another ECB rate cut this month,” said Natasha May, a global market analyst at JPMorgan Asset Management.

Bank of America Global Research economists also revised their forecasts following Lagarde’s comments and now expect another rate cut this month.

Cpapital Economics’ Franziska Palmas agrees, claiming that the recent inflation readings justify decisive action by the central bank later this month.

As The Wall Street Journal reported, eurozone money markets are pricing in rate reductions in the ECB’s remaining two policy meetings this year.

By lowering interest rates, the ECB hopes to revive a sluggish eurozone economy, which is expected to grow just 0.8% this year, according to Vanguard.

This poor performance comes after the eurozone economy stagnated in the final quarter of 2023.

Economists blame weak investment, high borrowing costs, high energy prices, a struggling manufacturing sector, and weak consumer confidence for the region’s woes.

“Europe desperately needs growth” and investment, Italian ECB member Piero Cipollone said last month. Every delay in cutting rates “puts us at a serious disadvantage.”

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