What will the ECB decide at its meeting on 12 September? Will it cut rates by 25 basis points as planned, or will it, surprisingly, leave them unchanged?
What are the forecasts for the next ECB meeting in September 2024? With only a few days to go before the meeting scheduled for the 12th of the month, speculation about a possible interest rate cut is taking centre stage. At its last meeting in July, the European Central Bank had left them unchanged at 4.25% after the June cut. While deposit rates are stuck at 3.75%.
Since then, new scenarios have emerged, in particular a drastic drop in inflation, at least according to the preliminary figure, from 2.6 % to 2.2 %. Moreover, the Federal Reserve, the central bank of the United States, is ready to cut rates for the first time since 2022. What will happen? Lagarde’s press conference will clarify all doubts.
ECB meeting September 2024: interest rate cut forecasts
The most credible forecasts on the ECB meeting in September 2024 and the European Central Bank’s interest rate cut tell us we will likely see a 25 basis point cut. This intervention would be justified by the slowdown in inflation, which is now very close to the 2% target, but also by the worrying downturn in growth. If this is the case, it would be the second cut in the cost of money this year after the June cut.
The European macroeconomic landscape
To explore the matter further, we can quote Carsten Brzeski, global head of macroeconomics at ING, who said on the occasion of the release of the latest inflation figures: ‘With the latest Eurozone inflation figures, a rate cut at the European Central Bank meeting has become almost a done deal’.
Therefore, economists suggest two factors to consider, especially in view of the upcoming ECB meeting in September: the slowdown in inflation and the worrying situation of growth indicators.
For example, the eurozone’s gross domestic product (GDP) grew by only 0.2% in the second quarter of 2024, a downward revision from the previous estimate of 0.3%. At the ECB meeting, there will also be time to review the macroeconomic projections since they were revised in June.
At that time, annual economic growth in the Eurozone was forecast at 0.9% in 2024, with a further strengthening to 1.4% in 2025 and 1.6% in 2026. Inflation, on the other hand, was expected to decline from 5.4 % in 2023 to 2.5 % in 2024, 2.2 % in 2025 and 1.9 % in 2026.
We continue with the Pacific Investment Management Company (PIMCO) forecast, which believes that the ECB will cut the deposit rate by 25 basis points from 3.75 % to 3.5 % at its meeting on 12 September 2024. The US firm believes that the Governing Council will provide much guidance beyond September and expects it to reiterate a data-dependent strategy.
How many interest rate cuts can we expect in the coming months?
In the current scenario, despite the drastic drop in inflation, leading industry experts continue to expect two interest rate cuts for 2024, both of 25 basis points. Fidelity, a US investment fund that also owns an ETF on Bitcoin, is of this opinion. If Fidelity’s predictions come true, the deposit rate will stand at 3.25% by the end of the year. By 2025, however, three more cuts are expected, bringing interest rates to 3% and the deposit rate to 2.50%.
DWS Group, one of the world’s leading asset managers, is more or less of the same mind: in 2025, rates will be reduced by 25 basis points every quarter until they reach 2.50% in September 2025.
Ulrike Kastens, Senior Analyst at DWS, stated in an interview on 5 September that the ECB Governing Council will want to avoid lowering interest rates too quickly to prevent inflation from rising again. According to Kastens, the elements in favour of a further interest rate cut in October would mainly be two:
- a larger drop in growth than expected;
- a larger interest rate cut by the Federal Reserve than expected, expecting a reduction of 25 basis points.
Bastian Freitag, an executive at the Franco-British investment bank Rothschild & Co, does not agree. He expects a plan of regular cuts of 25 basis points from September to December and further quarterly reductions in 2025.
What can we expect at the next ECB meeting in September? Will the predictions on the new interest rate cut come true? How will the Federal Reserve behave at its meeting on September 17 and 18?
