BofA Anticipates European Central Bank Rate Cuts at October Meeting

The European Central Bank (ECB) is now anticipated to reduce interest rates during its October meeting, based on fresh insights from analysts at Bank of America.

In a client update, the analysts pointed to recent remarks from ECB President Christine Lagarde, who indicated that new economic data had “strengthened” the confidence of policymakers in the belief that inflation will return to the target level of 2% in a timely manner. Lagarde mentioned, “We will take that into account in our next monetary policy meeting in October.”

The analysts at Bank of America observed that this language closely mirrored the rationale used for a quarter-point rate cut in September, suggesting that it is a strong indication of a potential rate decrease in October, barring any unexpected data releases.

Previously, mixed signals regarding inflation and economic performance in the eurozone had led the analysts to expect that the ECB might hold off on altering rates in October. However, following the anticipated reduction this month, they now predict consecutive cuts of 25 basis points each, bringing the ECB’s essential deposit facility rate down to 2% by June 2025—earlier than their previous estimates. The ECB influences monetary policy through adjustments to the deposit rate.

Additionally, they anticipate two more quarterly cuts in September and December 2025, which would lower the terminal rate to 1.50%, six months sooner than their earlier forecast. They highlighted discrepancies with consensus views, which expect the rate to be 2.25% by the end of 2025 and 2.20% for 2026.

At its September meeting, the ECB implemented a rate reduction for the second time in three months, considering the sluggish state of the eurozone economy and easing inflation pressures. The deposit rate was decreased by 25 basis points to 3.5%, following a hold at 3.75% in July after a cut from an all-time high of 4% the previous month.

During a press conference at that time, Lagarde emphasized that the central bank was not “committed” to a specific rate trajectory and would remain responsive to incoming data when determining future policy actions.