Van Lanschot Kempen: One more rate cut in December

12 september 2024

Rente ECB

Joost van Leenders, Senior investment strategist at Van Lanschot Kempen, comments on today's ECB interest rate decision:

Today’s rate cut by the ECB was no surprise. In recent comments, ECB policymakers had not tried to steer markets to any other option than the 25 basis point rate cute delivered today. End even though the ECB had paused in July, ECB-president Lagarde had acknowledged in June that the ECB is currently in the dialling back phase of monetary policy.

The ECB only slightly adjusted its growth and inflation forecasts. At 0.8% this year and 1.3% in 2025, the ECB growth projection was a notch lower than in June, as domestic demand underwhelmed. Headline inflation projections were unchanged at 2.5% this year and 2.2% next year. Core inflation is now projected slightly higher at 2.9% this year and 2.3% next year. Importantly for the ECB’s thinking about inflation and monetary policy, inflation is expected to return to the 2% target by the end of next year.

In her press conference, Lagarde presented this rate cut as another step in moderating the degree of monetary policy restrictiveness. Monetary policy will be held restrictive though, as long as necessary to get inflation back to the 2% target in a sustainable manner. The ECB will stay data-dependent and will decide about its policies meeting by meeting, as domestic price pressures are resilient, persistent and not satisfactory. However, with wage growth moderating according to different measures and profits absorbing some price pressures, according to Lagarde, the direction of rates is obviously declining. We expect one more rate cut this year in December.

All in all, there were no major surprises today. The German two-year and ten-year yield had risen a bit before the decision but fell back during and after. The positive mood on equity markets in the morning, following strong gains in the US the day before, soured a bit though. The modest growth outlook and the revelation that the ECB sees profit margins absorbing some of the inflationary pressures weighed on equities. Especially as the momentum and revisions of European earnings expectations have weakened lately.