A rate cut by the European Central Bank (ECB) is “fully expect[ed]” this September, according to DWS Group European economist Ulrike Kastens.
Kastens predicted a cut of 25 basis points in the deposit rate to 3.50%, as the data situation allows, in response to an expected moderation in wage growth and a 2.2% inflation rate decline in August. In addition, the current interest rate level is higher in real terms than it was in September 2023 – when the ECB last raised key rates.
Other contributing factors may include inflation forecasts, which are likely to remain almost unchanged, Kastens said, and economic expectations coming to the fore. The GDP forecast will likely see a downward revision, she added, due to weak domestic demand and a lack of improvement in industrial settlement.
Kastens concluded: “With the expected rate cut, the ECB should then take its monetary foot off the brake a little. Other than that, everything should remain the same: the focus will remain on data dependency, without any pre-commitment. We still expect further rate cuts to be very gradual. The next important date for a rate decision is likely to be December.”
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