European Central Bank officials reckon another interest-rate cut in December is highly likely, with inflation to settle at 2% faster than envisaged, according to people familiar with the matter.
Price gains may meet that goal in the first or second quarter of 2025 — much earlier than the ECB’s latest projections suggest — opening the door to further monetary easing, said the people, who asked not to be identified because discussions are private.
A move at the ECB’s final meeting of 2024 would also help protect the stuttering economy and ensure a soft landing, they said.
An ECB spokesperson declined to comment.
The central bank delivered a third cut of the year in borrowing costs on Thursday, driven by gloomy signals for private-sector growth and a steeper-than-expected slowdown in euro-zone prices. That brings the deposit rate to 3.25% from a peak of 4%.
While inflation has slumped to 1.7%, officials see it quickening again before sustainably meeting the target. A tweak in their policy statement, however, suggested they could achieve that aim sometime in the first half of next year, rather than at the end.
See also: ECB’s Schnabel sees only limited room for further rate cuts
When explaining the ECB’s latest decision, President Christine Lagarde refused to be drawn on when and how quickly rates will be decreased — even as she argued that downside risks to inflation outweigh upside threats.
Markets stepped up wagers on further loosening. Investors are now toying with the idea that quarter-point reductions will persist into April 2025, rather than March as assumed earlier. Some traders are also starting to bet on a 50 basis-point move in December.
A cut of that size wasn’t discussed this week, according to the people.
