Recent data indicates Eurozone inflation cooled significantly, marking the largest drop since January 2024, and for the first time since 2021, it fell below the European Central Bank's (ECB) 2% target. This development has increased market expectations for a rate cut by the ECB this month.
According to the European Union statistics released on October 1, there is a strong market sentiment that the ECB will proceed with a rate cut in October. The ECB President stated confidence in inflation returning to the target rate, citing the recent drop in energy prices. This sentiment was echoed by ECB board member Rehn, who indicated a more accommodative monetary stance.
Economists from Bank of America and Deutsche Bank have adjusted their forecasts, now predicting an October rate cut instead of December. LSEG data shows market participants are pricing in a 25 basis point rate cut for October, with predictions indicating a near 90% probability. The rate cut would reduce the current deposit rate from 3.5% to 3%.
Market projections suggest the ECB may consider another rate cut at the final meeting in December.
