Exclusive: ECB Doves Advocate for Rate Cut in October, Hawks Stand Firm

By Francesco Canepa and Balazs Koranyi

FRANKFURT – Dovish policymakers at the European Central Bank (ECB) are gearing up to advocate for an interest rate reduction next month following a series of disappointing economic indicators. However, this initiative is expected to face significant pushback from more conservative members of the bank, according to multiple sources.

Initially, ECB officials had deemed a rate cut on October 17 as unlikely after recently lowering borrowing costs due to downgraded growth projections and expectations for a gradual decline in inflation over the coming year.

Recent disappointment from euro zone business surveys and negative German sentiment data, along with a larger-than-anticipated slowdown in wage growth, have strengthened the resolve of those favoring lower rates. These dovish members now feel emboldened to push for a rate cut, as energy prices have fallen in recent weeks and some market indicators suggest a risk of prolonged undershooting of the inflation target.

Nonetheless, any attempts to reduce rates will likely face strong opposition from conservative members, commonly referred to as "hawks," who argue that survey results frequently portray a more pessimistic view than concrete data, such as GDP figures.

Some sources proposed a compromise that would keep rates stable in October but signal a potential cut in December if economic data does not improve, although this approach would contradict the ECB’s "meeting by meeting" strategy.

With the October decision still weeks away and crucial data, including September inflation, due out soon, the outcome remains uncertain. Several key decision-makers are still deliberating their positions.

Hawks continue to emphasize reliance on hard data—such as wage growth, GDP figures, and the ECB’s own economic forecasts—all of which will only be accessible in time for the December meeting. Although no major policymakers have outright rejected the possibility of an October cut in private discussions, Peter Kazimir from Slovakia has publicly indicated that a decision will "almost surely" wait until December.

In the wake of weak economic data, traders have increased their predictions for an October rate cut, now estimating a 50-60% likelihood that the ECB will lower its deposit rate by 25 basis points to 3.25%, an increase from the earlier 35% probability.

"Overall, September’s PMI (Purchasing Manager Index) data indicates that the euro zone’s economic recovery is built on unstable ground. Coupled with easing price pressures, this will likely amplify the calls from ECB doves for another rate cut in October,” noted Paul Hollingsworth, chief Europe economist at BNP Paribas.

Economists at HSBC anticipate that the ECB will implement a 25-basis point rate cut at each meeting from October through April. Additionally, Societe Generale economist Anatoli Annenkov mentioned that there might be merit in initiating earlier rate cuts.