ECB Preview: Forecasts from major banks

The European Central Bank (ECB) is scheduled to announce its monetary policy decision on Thursday, October 26, at 12:15 GMT. As the release time approaches, economists and researchers from major banks have shared their expectations.

The ECB is widely anticipated to maintain its current interest rates unchanged. This expectation comes after a series of ten consecutive increases. The simultaneous decline influences the decision to hold rates steady in both inflation rates and economic growth. Despite this decision, analysts believe that the central bank will likely indicate its openness to future rate hikes, keeping the possibility of such adjustments on the table.

Wells Fargo

With the Eurozone likely in recession and inflation heading lower, we also believe the ECB has reached peak policy rates. With that said, we expect the ECB will be cautious about reducing interest rates until inflation is much closer to its target. As a result, we do not expect an initial 25 bps rate cut until the June 2024 meeting, which would lower the Deposit Rate to 3.75%. Moreover, we expect the ECB to reduce rates at a gradual 25 bps per meeting pace through the second half of next year, which would see the Deposit Rate end 2024 at 2.75%. The combination of an underwhelming growth outlook and peak policy rates should also keep the Euro on the defensive around the 1.06 level for the time being.”

Danske Bank

ECB is widely set to be on hold in terms of policy rate changes for the first time since June last year. Since the September meeting, inflation and growth data have been broadly in line with expectations and taking into account the clear guidance from the ECB, no changes should be expected at the upcoming meeting. We expect Lagarde to acknowledge a discussion on advancing the PEPP reinvestments during the Q&A part of the press conference, thereby signalling a tightening bias, albeit with some optionality still in its communication.”

Nordea

After the ECB signalled at the September meeting that rates have likely peaked, while recent inflation data have actually surprised to the downside, the decision to leave rates unchanged at the 26 October meeting looks straightforward. We think the ECB is done for now, but note that if rates are changed further at the next few meetings, then rate hikes are more likely than rate cuts. For now, we estimate that rate cuts could start in June 2024.

TDS

The October decision should be a well-telegraphed hold, with the deposit rate remaining at 4.00%. We see a quite high bar for further hikes, and think the Governing Council will be more willing to tweak the length of time rates stay at terminal rather than resume rate hikes. The ECB is unlikely to be a major driver of EUR/USD. A mixture of peak US rates, weak USD and stable ex-US growth are needed to lift the EUR.