Straight ball implies a rate cut! Lagarde said she will consider "enhanced confidence in controlling inflation" in October
六月清晨搅
发表于 2024-10-1 10:46:22
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The speculation about the European Central Bank's "October interest rate cut" has finally received a strong official tone.
On Monday local time, European Central Bank President Lagarde appeared in the new European Parliament to attend a hearing of the Economic and Monetary Affairs Committee. During her speech, Lagarde made it clear that policymakers in the eurozone have become "more optimistic" about being able to control inflation, and bluntly stated that this sentiment will be reflected in the next monetary policy meeting.
[align center] (Photo of Lagarde with Aurore Laluc, the new chairman of the Economic and Monetary Affairs Committee, source: X)
As the most crucial statement in Lagarde's testimony, the head of the European Central Bank stated that inflation data in the eurozone may temporarily rise in the fourth quarter, as earlier energy price declines will no longer be included in annual data. But the latest developments have strengthened our confidence in the timely return of inflation to the target. We will consider this at the next monetary policy meeting in October.
[align center] (testimony released by ECB)
In September, European Central Bank staff predicted that the overall inflation rate for this year would be 2.5%, dropping to 2.2% in 2025 and 1.9% in 2026.
Faced with Lagarde's suggestion, the bond market's expectation for the probability of the European Central Bank cutting interest rates by 25 basis points in October has slightly increased to 85%.
'Economic headwinds' put on the table
The "latest development" mentioned by Lagarde is precisely the economic data of the Eurozone economies that have been fiercely discussed in the past two weeks and have generally weakened beyond expectations.
Last week, not only did inflation data in Spain and France weaken, but the Eurozone PMI survey data also exceeded expectations and fell below the boom bust line. This Monday's inflation data for Italy and Germany also clearly showed a real weakening situation. A series of national data indicate that the September inflation rate in the eurozone, which will be released on Tuesday, may fall below the 2% policy target for the first time since mid-2021.
(Eurozone inflation rate, source: Trading Economics)
So from the implied probability of interest rate cuts in the bond market to economists' overnight revisions of forecast reports, all point to the European Central Bank cutting interest rates at its meeting on October 17th.
According to a report by Caixin earlier on Monday, economists from well-known institutions such as Goldman Sachs, JPMorgan Chase, BNP Paribas, and Prudential have revised their forecasts in the past few days, believing that the European Central Bank will cut interest rates by 25 basis points in October. However, meetings in December and beyond are still subject to a series of uncertain factors, especially the results of the US election in early November.
While emphasizing the risks of economic growth, Lagarde also attempted to convey some confidence in long-term growth. She stated that some indicators indicate that the economic recovery is facing headwinds, but it is expected that as residents' actual income increases, household consumption will increase and the recovery will gradually strengthen. The latest forecast from the European Central Bank is for the Eurozone economy to grow by 0.8% in 2024, with growth rates gradually accelerating to 1.3% and 1.5% in the following two years. At the same time, the unemployment rate will also remain at its current low level.
The European Central Bank implemented the second key deposit rate cut of this round of interest rate cuts in early September this year, after which a series of officials stated that they needed to wait for more comprehensive economic data before taking action. However, as the growth prospects deteriorate, the market generally believes that the statement made two weeks ago is outdated.
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