The European Central Bank is now expected to cut interest rates at its October meeting, based on new estimates from analysts at Bank of America.
In a note to clients, analysts referred to ECB President Christine Lagarde's statement that recent economic data had "strengthened" policymakers' confidence that inflation would return to the 2% target level in due course.
"We will take that into account in our next monetary policy meeting in October," Lagarde said.
The BofA analyst noted that the language he used reflected similar justifications used for the quarter-point rate cut in September, adding that this was a "clear signal" for October, unless there is a data shock until then.
A combination of inflation figures and mixed economic activity from the European zone has previously led analysts to expect that the ECB may not cut interest rates in October.
Following an expected cut this month, BofA analysts now forecast "consecutive cuts of 25 basis points each," which would lower the ECB's key deposit rate to 2% by June 2025, a quarter earlier than their previous forecast. The ECB controls monetary policy through the deposit rate.
They also expect two more quarterly cuts in September and December 2025, which would bring the terminal rate to 1.50% six months earlier than their previous projection.
"We are still different from the consensus (2.25% for the end of 2025 and 2.20% for 2026) and market expectations," said the analyst.
In the last meeting in September, the ECB cut interest rates for the second time in three months, given the economic slowdown in the European zone and the easing of inflationary pressures.
Interest rates were lowered by 25 basis points to 3.5%. In July, the European Central Bank kept the benchmark rate unchanged at 3.75%, after cutting it from an all-time high of 4% the previous month.
In a press conference at the time, Lagarde emphasized that the central bank is not "tied" to a specific rate path and will continue to rely on data in making future policy decisions.
