The European Central Bank (ECB) will cut deposit rates twice more this year, in September and December, according to a large majority of economists polled by Reuters who expressed a tendency for fewer rate cuts than expected.
The view was broadly unchanged from a survey taken before the ECB implemented its long-announced 25 basis point rate cut on June 6.
Increased business activity, strong wage data and price pressures that have yet to ease have increased uncertainty about the rationale for more rate cuts.
In an interview with Reuters on Monday, ECB Chief Economist Philip Lane said there was no "rush" to cut interest rates if the economy continued to grow.
However, a majority of nearly 80% in a June 12-18 Reuters poll, 64 out of 81, expected the ECB to cut twice more this year, in September and December, bringing the deposit rate to 3.25%.
That number is up from nearly two-thirds in May and only about half in the April survey. While 11 expect just one more reduction this year, six predict three additional reductions.
ECB President Christine Lagarde reiterated at a June press conference that the bank would "continue" to rely on economic data to guide policy decisions, even though the ECB has done everything but formally announce the June cuts in advance.
Financial markets, which until recently expected another reduction this year, have begun to reckon with two reductions in just the last few days, partly related to the turmoil in the French bond market following President Emmanuel Macron's decision to hold snap parliamentary elections that began last week. this month.
Inflation, which rose to 2.6% last month from 2.4% in April, will not reach the ECB's 2% target until Q2 2025, according to the median survey, slightly more optimistic than the ECB's latest forecast which showed inflation above 2% until at least 2026 .
Fewer rate cuts from the US Federal Reserve, which is now expected to deliver at most two or perhaps just one reduction this year, could cause the euro, down nearly 3% for the year against the US dollar, to weaken further. This could lead to unwanted import inflation.
A nearly 90% majority of economists, 36 out of 41, said the risks were more likely to be fewer ECB rate cuts this year than more.
Meanwhile, the European zone economy, which grew 0.3% in the last quarter, will grow on average 0.7% this year and 1.4% next year, broadly unchanged from the last survey.
