The European Central Bank (ECB) is set to reduce its deposit rate twice this year—in September and December—according to a Reuters poll of economists. Most respondents believe the likelihood leans towards a less significant rate cut than initially anticipated.
This projection remains unchanged from a survey conducted prior to the ECB’s 25 basis point rate cut on June 6. Enhanced business activity, favorable wage data, and persistent price pressures have heightened uncertainty about additional rate cuts.
In an interview with Reuters, a member of the Executive Board of the European Central Bank mentioned there is no immediate need for further rate cuts if the economy continues to expand. Nonetheless, a substantial majority (around 80%) of those surveyed between June 12 and 18 (64 out of 81) anticipate the ECB will implement two more rate cuts this year, lowering the deposit rate to 3.25%.
This is an increase from previous surveys: in May, nearly two-thirds of respondents expected this outcome, while in April, it was about half. While 11 participants forecasted one cut this year, six predicted three additional cuts.
President of the European Central Bank Christine Lagarde stated at a June press conference that the bank will continue to base its decisions on economic data. Greg Fuzesi, a Euro area economist at JPMorgan, pointed out that although the ECB did not formally announce the June rate cut in advance, it was anticipated.
According to the survey, inflation, which rose to 2.6% last month from 2.4% in April, is not expected to reach the ECB's 2% target until mid-2025. This is an improvement from the ECB's latest forecasts, which predicted inflation would remain above 2% until 2026.
Additionally, smaller rate cuts by the US Federal Reserve, anticipated to make a maximum of two or possibly just one cut this year, could further weaken the euro, potentially leading to unwanted imported inflation.
Nearly 90% of economists (36 out of 41) believe the risks are tilted towards smaller ECB rate cuts this year.
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