Opinions et Idées

A “standard” quarterly interest rate cut

10 septembre 2024

After June's rate cut, the European Central Bank (ECB) is expected to lower its key interest rate (i.e., deposit rate) by 25 basis points (bps) at its upcoming meeting. The focus will be on new economic projections. At the press conference, ECB President Christine Lagarde should stress concerns about Eurozone economic activity given the weakness of data and confidence indicators.

Please find below what we expect:

  • Governing Council (GC) members to reduce the deposit facility rate (DFR) by 25 bps to 3.50%.
  • As announced in March 2024, starting September 18, the ECB will implement an adjustment to the width of the corridor of policy rates « to limit the potential upward pressure on money market rates and set incentives for banks to borrow liquidity in the ECB operations». The rate on the main refinancing operations (MRO) will be anchored at 15 bps above the deposit rate (at 3.65% with the expected 25 bps cut on the DFR), as opposed to 50 bps currently. The highest rate, on the marginal lending facility rate (MLF), will remain at 25 bps above that MRO (at 3.90%).
  • President Christine Lagarde will again underline that the ECB will maintain a data-dependent and meeting-by-meeting approach for subsequent adjustments. Therefore, Mrs. Lagarde is not expected to share any forward guidance beyond this meeting.
  • Regarding updated ECB macroeconomic projections, with downside risks to the growth outlook, we expect lower figures especially for 2024 and projections to predict that inflation will fall to the 2% target in the last quarter of 2025 unchanged. 

In summary, the ECB’s decision to cut rates in September should be driven by a weakening economic momentum in the Eurozone. Despite a continued rise in services prices, the ECB should keep confidence in the inflation path ahead (i.e., towards the 2% target by the end of 2025). We believe that risks are from the dovish side (lower European interest rates and Euro currency) considering the current economic momentum. Consequently, Christine Lagarde is likely to keep the door open to another potential cut in October. 

This commentary is provided for information purposes only. The opinions expressed by the La Française group are based on current market conditions and are subject to change without notice. These opinions may differ from those of other investment professionals. Published by La Française AM Finance Services, head office located at 128 boulevard Raspail, 75006 Paris, France, a company regulated by the Autorité de Contrôle Prudentiel as an investment services provider, no. 18673 X, a subsidiary of La Française. Crédit Mutuel Asset Management: 4, rue Gaillon 75002 Paris is an asset management company approved by the Autorité des marchés financiers under n° GP 97 138. Public Limited Company (Société Anonyme) with share capital of €3,871,680, RCS Paris n° 388 555 021, Crédit Mutuel Asset Management is a subsidiary of Groupe La Française, the asset management holding company of Crédit Mutuel Alliance Fédérale.  

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