By Indradip Ghosh
In a recent poll conducted by Multibagger, a strong majority of economists predict that the European Central Bank (ECB) will cut its deposit rate twice more this year, with potential cuts in September and December. The balance of risks is seen leaning towards just one additional cut by the end of the year.
Despite indications from several Governing Council members, including ECB President Christine Lagarde, that there is no rush to lower borrowing costs further due to high services inflation, record-low unemployment, and elevated wage growth, economists remain confident in their predictions.
All 85 economists surveyed expect the ECB to maintain interest rates on July 18, but more than 80% anticipate two more rate cuts this year, taking the deposit rate to 3.25%. Some economists believe inflation is stickier than forecasted, leading to a gradual rate-cutting approach unless significant changes occur.
When asked about the future deposit rate by the end of 2024, two-thirds of economists believe it is more likely to be higher than lower. Inflation is not expected to reach the ECB's 2% target until the second half of 2025, with core price pressures remaining elevated through 2024.
Services are expected to be the stickiest component of core inflation, with prices rising steadily in recent months. The tight labor market is also contributing to inflation pressures, with wage growth still below the ECB's target rate of 3%.
The ECB is projected to reduce the deposit rate three times next year, reaching 2.50% by the end of 2025. Economic growth in the euro zone is expected to average 0.7% this year and 1.4% next year, with Germany's economy growing at a slower pace.
Overall, the ECB's monetary policy decisions and economic indicators suggest a cautious approach to rate cuts and inflation management in the coming years, which could impact financial markets and individual finances.