DWS: More significant rate cuts by the ECB in the coming months
Ulrike Kastens, Senior Economist at DWS, comments on yesterday's ECB decision.
The ECB today cut its deposit rate by 25 basis points to 3.25 per cent. According to the ECB, the disinflation process is well on track. At the same time, ECB President Lagarde stressed that economic data continue to deteriorate. In this respect, it was right to act today. As expected, monetary policy communication was kept unchanged: The ECB remains data-dependent. Decisions are taken on a “meeting by meeting” approach, without any pre-commitment to a specific interest rate path. This was reiterated by ECB President Lagarde at the press conference.
Although there were no new projections, our impression is that there is growing confidence among ECB members of achieving the inflation target in the course of 2025. The overall assessment of the economic situation was weaker than at the September meeting. Risks to the economy remain tilted to the downside, but a recession is not expected. In addition, she also stressed the restrictiveness of financing conditions. In real terms, policy rates are now even more restrictive than in September 2023, when the last rate hike took place.
Although the ECB continues to emphasize its data-dependency, the path is clear for further significant rate cuts in the coming months, especially as the debate about the weakness of the economy will gain momentum between now and the next ECB meeting in December. We expect the next rate cut to come in December.