ECB Is Set to Deepen Global Easing With Rate Cut It Didn’t Expect

(Bloomberg) -- The European Central Bank will probably advance the global push for monetary easing in the coming week with an interest-rate cut that policymakers had all but ruled out just a month ago.

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The third quarter-point reduction of this cycle is seen likely by economists to herald a longer-lasting acceleration in action by officials seeking to cushion the euro zone from the hit to growth created by an extended period of high borrowing costs, and now playing out with a lag.

ECB President Christine Lagarde, at the press conference she’ll host after Thursday’s meeting near the Slovenian capital of Ljubljana, may be quizzed both on the path forward for further cuts, and on what materially changed from the September meeting.

With a smaller-than-usual gap of just five weeks between decisions, and not much new data available, officials appear to be abandoning recent caution about lingering inflation pressures in order to respond mainly to survey data pointing to a contraction in the private-sector economy.

Such reports have moved the needle for financial markets, and stoked momentum for a cut that’s widely anticipated after policymakers largely endorsed the change in bets.

The switch has been abrupt. At the Sept. 12 decision, officials almost excluded a cut in October. Days later, Slovakian central bank governor Peter Kazimir declared that “we will almost surely need to wait until December” for another move because “very little new information” would be available by Oct. 17.

He’s now the sole voice publicly arguing against a move on Thursday, although other hawks could potentially join him behind the scenes.

What Bloomberg Economics Says:

“The ECB will lower borrowing costs by 25 basis points in October and again in December. After that we see quarterly moves as policymakers feel their way to neutral.”

—David Powell, senior euro-area economist. For full analysis, click here

As for what happens next, economists now reckon the ECB will speed up its easing to bring borrowing costs down to a level that no longer constricts the economy by the end of 2025, according to a Bloomberg survey.

Elsewhere, Chinese data may show the economy continuing to underperform its target, other central banks from Southeast Asia to Chile will deliver rate decisions, and UK inflation may finally slow below 2%. The Nobel Prize in economics will be announced in Stockholm on Monday.