ECB doves to push for rate cut in Oct, hawks to dig in
Published: 05:09 PM,Sep 26,2024 | EDITED : 08:09 PM,Sep 26,2024
A view of European Central Bank (ECB) headquarters in Frankfurt. — Reuters
FRANKFURT– Policy doves at the European Central Bank are preparing to push for an interest rate cut next month after a series of weaker-than-expected economic data, a move that is likely to meet resistance from their more conservative peers, seven sources told Reuters.
ECB policymakers had previously seen an October 17 rate cut as unlikely after reducing borrowing costs this month due to weaker growth forecasts and expectations for a continued, albeit uneven, decline in inflation over the coming year.
However, disappointing euro zone business surveys, German sentiment data, and a more significant-than-expected slowdown in wages have emboldened policymakers who favor lower rates — the so-called doves — to push for a cut, according to the sources.
Energy costs have also dropped in recent weeks, and some market indicators now point to a risk that the ECB could undershoot its inflation target for an extended period.
Any push for another rate cut, however, will face strong opposition from the 'hawks,' who argue that surveys often present a bleaker outlook than hard data like GDP figures, the sources added.
Some sources mentioned a potential compromise where rates are held steady in October but a strong indication is given of a likely cut in December if data does not improve. However, this would contradict the ECB's 'meeting by meeting' approach.
An ECB spokesperson declined to comment on the matter.
With the October 17 decision still three weeks away, and important data such as September inflation set to be published next week, the decision remains wide open, with some swing voters yet to decide, the sources said.
Hawks have long argued that the emphasis should be on hard data, such as wage and GDP figures, along with the ECB's projections, which will only be available for the December meeting.
While few policymakers have privately ruled out an October cut, Slovakia's Peter Kazimir has publicly stated that the ECB will 'almost surely' have to wait until December.
Traders have increased their bets on an October rate cut following the recent weak data. Money market prices now show a 50-60 per cent likelihood of the ECB lowering its deposit rate by 25 basis points to 3.25 per cent, up from a 35 per cent chance a week ago.
'Overall, September’s PMI data suggests that the euro zone's economic recovery rests on shaky foundations, which combined with softer price pressures, is likely to see ECB doves increasingly vocal about the need for another cut in October,' said Paul Hollingsworth, chief Europe economist at BNP Paribas.
Economists at HSBC expect the ECB to cut interest rates by 25 basis points at every meeting from October through to next April, while Societe Generale economist Anatoli Annenkov said there was a case to front-load rate cuts.— Reuters
ECB policymakers had previously seen an October 17 rate cut as unlikely after reducing borrowing costs this month due to weaker growth forecasts and expectations for a continued, albeit uneven, decline in inflation over the coming year.
However, disappointing euro zone business surveys, German sentiment data, and a more significant-than-expected slowdown in wages have emboldened policymakers who favor lower rates — the so-called doves — to push for a cut, according to the sources.
Energy costs have also dropped in recent weeks, and some market indicators now point to a risk that the ECB could undershoot its inflation target for an extended period.
Any push for another rate cut, however, will face strong opposition from the 'hawks,' who argue that surveys often present a bleaker outlook than hard data like GDP figures, the sources added.
Some sources mentioned a potential compromise where rates are held steady in October but a strong indication is given of a likely cut in December if data does not improve. However, this would contradict the ECB's 'meeting by meeting' approach.
An ECB spokesperson declined to comment on the matter.
With the October 17 decision still three weeks away, and important data such as September inflation set to be published next week, the decision remains wide open, with some swing voters yet to decide, the sources said.
Hawks have long argued that the emphasis should be on hard data, such as wage and GDP figures, along with the ECB's projections, which will only be available for the December meeting.
While few policymakers have privately ruled out an October cut, Slovakia's Peter Kazimir has publicly stated that the ECB will 'almost surely' have to wait until December.
Traders have increased their bets on an October rate cut following the recent weak data. Money market prices now show a 50-60 per cent likelihood of the ECB lowering its deposit rate by 25 basis points to 3.25 per cent, up from a 35 per cent chance a week ago.
'Overall, September’s PMI data suggests that the euro zone's economic recovery rests on shaky foundations, which combined with softer price pressures, is likely to see ECB doves increasingly vocal about the need for another cut in October,' said Paul Hollingsworth, chief Europe economist at BNP Paribas.
Economists at HSBC expect the ECB to cut interest rates by 25 basis points at every meeting from October through to next April, while Societe Generale economist Anatoli Annenkov said there was a case to front-load rate cuts.— Reuters