DWS expects ECB to cut rates again in January

Fourth interest rate cut this year – and it will not be the end

Today's rate cut is the ECB's response to deteriorating economic data, but also to its confidence that inflation will move towards its 2% target. Both are reflected in the projections. Over the entire forecast horizon, GDP projections have been revised slightly lower, while inflation is expected to average just above 2% over the next few years. ECB President Lagarde seemed more confident with the inflation outlook, although it is too early to declare victory over inflation. As expected, she did not pre-commit to a future monetary policy stance and did not hint at a further rate cut in January. Given the high degree of political and economic uncertainty, the ECB maintains its data-dependency and meeting-by-meeting-approach. We continue to believe that the ECB is on a path of rate cuts. Although growth forecasts have been revised downwards, the downside risks to the economy are not yet sufficiently reflected in the GDP projections. This should be corrected gradually in 2025. We expect the next cut to come in January. Further rate cuts are in the pipeline. We expect the ECB to cut the deposit rate to 2% in 2025.