“Lagarde, can you hear the pigeons?” The ECB’s new rate cut in October will trigger a flood of cuts by 2025.

The market asks, and the ECB does not always fulfill its wishes. Analysts tracking the central bank say there will be a pause before its next meeting in October and another cut by the December meeting, leaving interest rates at 3.25%. Bank of America broke the expert consensus and believes Lagarde will announce a new rate cut by the October 17 meeting. American Bank is one of the firms that has maintained a more aggressive rate cut outlook in recent months than analyst consensus expected. However, far from being deterred, the organization further accelerated its forecast for the European Central Bank to cut money prices in the coming quarters.

“Clarice, can you hear the pigeons?“With this promising title taken from the tense dialogue between Hannibal Lecter and Clarice Sterling from the film. Silence of the lambs Europe’s chief economist announced that the bank had changed the ECB’s forecasts to match the market for the rest of the year. In this case It appears that it was Lagarde who heeded the signals calling for more aggressive rate cuts in the eurozone.and his last speech before the European Parliament convinced the bank’s experts.

“Accelerating the ECB’s rate cuts in 2025 has long been our base case scenario, which is contrary to analyst consensus,” the bank explains. “We argue that either inflation or the failure of the real economy to improve could cause the central bank to accelerate this process sooner than expected, and the latest data suggests a combination of both factors,” they note. “Until recently we thought the ECB would prefer to wait for more data to cut rates and not do so in October, but The President’s latest speech to the European Parliament suggests that the possibility of seeing cuts in October is closer to fruition.”emphasizes the bank.

With this argument, Bank of America admits that it paid very close attention to Lagarde’s official speech. The ECB president’s rhetoric has always been key to anticipating possible changes in its monetary policy, so much so that one speech was enough to convince the bank’s analysts that the institution was set to cut rates this month, which would boost the pace of economic growth. reductions compared to the expectations they maintained. “We believe Lagarde has given a clear view,” experts say, pointing to the president’s words that led them to change their minds, the same message she sent ahead of the September meeting at which the Board of Governors decided to cut rates.

“Looking ahead, inflation may rise temporarily in the final quarter of this year due to the seasonal effect of oil, but recent developments strengthen our confidence that inflation will reach our target. We will take this into account at our October monetary policy meeting. ” the president said, which is the same message she delivered before the September meeting. “This is the same rationale that Lagarde used to cut rates last time, and so it is almost a signal for a rate cut in October, as long as there are no big surprises in the data before that date.”– he notes.

Moreover, the bank’s analysts doubt that “the president would have given such a clear signal if she did not have some degree of confidence that the average member of the Board of Governors is ready to vote for a rate cut in October,” they point out.

New roadmap

“We now expect successive cuts to begin in October, so the deposit rate will reach 2% in June 2025 and end the year at 1.5%.. Accelerated cuts have long been part of our base case, but are outside the consensus, as are cuts below 2%, although all are now expected to occur six months earlier than we initially thought,” Ruben Segura-Cayuela said in a note to clients. .

The bank now expects the ECB to cut rates on a meeting-by-meeting basis at a rate of 25 basis points. As of today, experts expected the organization to take a break in October before lowering the price of money again at its December meeting. Under the new scenario, “the ECB will raise the deposit rate (the eurozone’s benchmark interest rate) to 2% in June 2025, representing a cut of 150 basis points or, equivalently, six consecutive cuts of 25 basis points.” points.

There will be two more cuts of the same magnitude between then and the end of the year, and the ECB will end 2025 leaving the deposit rate at 1.5%, six months earlier than the US bank had expected so far. “We continue to believe that both economic activity and inflation will continue to surprise with their decline. Even our forecasts, which point to lower rates than consensus expects, contain several risks that could exacerbate them,” admit and warn that “the inflation situation appears to be consistent with a sustained fall below the ECB’s target in the near future”. We’ll have to wait to see if Lagarde is now “listening to the pigeons” as they hope.

Model Predictions Indexed Overnight Swap (OIS)based on financial swaps, They expect eurozone rates to exceed 2% by November 2025.. There is no information yet about next year’s December meeting.

Segura-Cajuela insists that her new forecasts are driven by ECB President Lagarde’s speech in the European Parliament last Monday, using the same argument as for the September cut as a consideration at the October meeting. “We doubt that he did it by accident, and we doubt that he did it without a sense of consensus in the ECB Governing Council. And we also doubt that once this acceleration begins, it may slow down again very soon,” he argues.

Many experts continue to be of the opinion that the ECB will carry out one rate cut per quarter, which puts the October meeting on pause. According to market consensus Bloomberg only 37% of economists who follow the ECB expect a rate cut in October. However, the market continues to exert pressure and gives a 90% probability of this decline.