The European Central Bank is widely expected to maintain current interest rates at its upcoming governing council meeting on Thursday 18 July. This consensus emerges from a Delano survey of nine leading economists, who noted the central bank’s cautious approach amidst mixed economic signals. They also maintain that future rate cuts will depend on upcoming economic data.
David Chappell, senior fund manager fixed income at Columbia Threadneedle Investments, highlighted the ECB’s pre-committed rate cut in June, noting the unease that accompanied it due to unfavourable wage and inflation data. Chappell stated that the ECB would likely leave rates unchanged this week, with ECB president Christine Lagarde expected to be less explicit about the timing of any future policy actions.
Frederik Ducrozet, head of macroeconomic research at Pictet Wealth Management, told Delano that the ECB would likely remain on hold this week. “Barring any major surprises on incoming data and/or changes to the staff projections,” Ducrozet forecasted, “the central bank will likely cut rates again in September and December, bringing the deposit facility rate down to 3.25% by year-end.”
Thomas Giquel, global head of fixed income at Indosuez Wealth Management, expects that the ECB is “unlikely to cut in July,” but “the slowing growth will sustain the next cut anticipated for September.” Giquel is the only one of the six experts who believes that the ECB, in varying degrees, would still implement three more rate cuts of 25 bps each during September, October and December meetings. He commented that “while investment keeps being flat, the European Commission opens excessive deficit procedures for seven countries, thus limiting counter cyclical buffers.”
Paul Jackson, global head of asset allocation research at Invesco, expects that the members of the ECB governing council would not make any cuts this week and “I expect it to reduce rates another one or two times this year.” He argued that the ECB’s reluctance to cut rates in July was because, “Unfortunately, the [US] Fed has yet to follow suit and, until it does so, the ECB may be reluctant to ease much further--for fear of weakening the euro.” He thinks, “No matter the timing, the easing bias will remain intact, especially given the political uncertainty in the eurozone.”
Ulrike Kastens, senior economist at DWS, echoed this sentiment, expecting no changes in July and emphasising the ECB’s high data dependency. Kastens mentioned that “the ECB assesses its monetary policy as more restrictive compared to September 2023, when it last raised interest rates.” She pointed to moderate wage data in the second quarter of 2024 as a potential indicator for another 25 basis points rate cut in September.
Volker Schmidt, portfolio manager at Ethenea, referenced Lagarde’s statements at the central bank forum in Sintra, Portugal, where she stressed that further rate cuts would depend on the data. Schmidt also noted the ECB’s quarterly calculations, which slightly raised inflation forecasts for 2024 and 2025 in June, and said, “We do not expect an interest rate hike at the upcoming ECB meeting.” He added, “As there is no ECB meeting in August, the second rate cut could then be decided at the September meeting.” Schmidt reasoned that the ECB’s updated economic outlook in September would provide more clarity on future rate cuts, despite potential inflationary pressures from major summer events.
Andrzej Szczepaniak, senior economist at Nomura, said, “With the ECB having already cut in June, we expect further cuts in September and December,” but neither in the July and October 2024 meetings. He however warned that robust wage growth, evidenced by the Indeed wage tracker and resilient demand in the services sector could pose risks, potentially leading to fewer cuts than anticipated. Szczepaniak highlighted the ongoing inflationary pressures from the services sector and “with rising shipping costs, upside risks to core goods prices is becoming more prevalent.”
Samuel Zief, head of global FX strategy at JP Morgan Private Bank, concurred with the expectation that the ECB would hold rates steady on Thursday 18 July. Zief argued, “Neither growth nor inflation have weakened to such an extent of late as to warrant back-to-back rate cuts.” He aptly summarised, “Our base case is for cuts to come at a quarterly pace.”
Salman Ahmed, global head of macro and strategic asset allocation at Fidelity International, expects the ECB to keep rates unchanged in July. He says that although the ECB has begun cutting rates, it is now strictly data-dependent. Recent inflation and wage data have been higher than expected, requiring close monitoring. However, growth is showing early signs of weakness, suggesting the ECB might cut rates soon. Ahmed thinks that the ECB will make a rate decision at the September meeting, by which time two more sets of economic data will be available.
Evelyn Herrmann, an economist at Bank of America Securities, expects the ECB to maintain policy rates and leave guidance unchanged. “That also means no signal for September,” Herrmann added. Bank of America Securities projects two additional cuts this year, likely 25 basis points each in September and December, with a return to a 2.00% deposit rate by the second half of 2025, driven by lower-than-expected inflation.