European Central Bank officials reckon another interest-rate cut in December is highly likely, with inflation to settle at 2% faster than envisaged, according to people familiar with the matter.
Price gains may meet that goal in the first or second quarter of 2025 — much earlier than the ECB’s latest projections suggest — opening the door to further monetary easing, said the people, who asked not to be identified because discussions are private.
A move at the ECB’s final meeting of 2024 would also help protect the stuttering economy and ensure a soft landing, they said.
An ECB spokesperson declined to comment.
The central bank delivered a third cut of the year in borrowing costs on Thursday, driven by gloomy signals for private-sector growth and a steeper-than-expected slowdown in euro-zone prices. That brings the deposit rate to 3.25% from a peak of 4%.
While inflation has slumped to 1.7%, officials see it quickening again before sustainably meeting the target. A tweak in their policy statement, however, suggested they could achieve that aim sometime in the first half of next year, rather than at the end.
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When explaining the ECB’s latest decision, President Christine Lagarde refused to be drawn on when and how quickly rates will be decreased — even as she argued that downside risks to inflation outweigh upside threats.
Markets stepped up wagers on further loosening. Investors are now toying with the idea that quarter-point reductions will persist into April 2025, rather than March as assumed earlier. Some traders are also starting to bet on a 50 basis-point move in December.
A cut of that size wasn’t discussed this week, according to the people.
