The ECB plans another rate cut

The European Central Bank plans to reduce the deposit rate by 25 basis points at a meeting to be held on September 12. According to most economists, this will not be the last rate cut this year — it will be cut again in December.

The rate cut was made possible by slowing inflation to a 3-year low in August and cooling wage growth. The median forecast of economists showed that the probability of a recession in the next two years is only 30%. Almost 85% of economists predict a reduction in the deposit rate next week and another decrease in December to 3.25%.

A cautious approach to lowering the rate seems appropriate, given the expected acceleration of inflation by the end of the year and its retention above the ECB's target level of 2% until at least the second half of 2025. Markets estimate the probability of a rate cut by the US Federal Reserve by more than 100 bps this year. Most economists in a separate survey predicted a 25bp rate cut at each of the three remaining meetings.