ECB Interest Rate Prep

Investment Bank Views

Goldman Sachs
We expect the ECB to deliver a 25 BPS cut in December, followed by continued sequential 25 bps cuts until the policy rate reaches 1.75% in July 2025. We continue to see risks towards faster and deeper cuts if growth and inflation turn out weaker than we project.

BofA
Bank of America expects the ECB to maintain its current pace, cutting rates at every meeting until the deposit rate reaches 1.5% by September 2025. “With an economy that will be growing at or below trend for most of 2025, it will be difficult for the ECB to pause rate cuts until the deposit rate drops slightly below its estimate of the neutral level of 2%,” said Bank of America analysts. They added: “At this point, 1.5% is easily becoming an upper bound.”

CACIB
We remain of the view that 25 BPS is more consistent with the ECB’s gradualist approach, with inflation more consistent with target and no recession to contemplate.

ABN Amro
ABN Amro expects only minor changes to the ECB’s growth forecasts but anticipates a more significant revision to inflation projections for 2025. “We expect headline inflation for 2025 could see a more meaningful downgrade, with our forecast at 2% compared to the September projection of 2.2%,” said Arjen van Dijkhuizen, senior economist at ABN Amro.

JPMorgan
The market is pricing in just a 20% chance of a large ECB rate cut on December 12th but JPMorgan thinks that’s not enough. They’re out with a new note calling for 50 bps. Originally expecting the move in January, they now believe December will be the tipping point for a larger rate cut, stating “economic data is unravelling faster than anyone anticipated.”

Money Market Pricing & Comments

December 5th
ECB is to cut the deposit rate by 25 BPS in December to 3.00%, said 73 of 75 economists. Two said 50 BPS.
ECB are to cut the deposit rate to 2.00% or lower by end-2025, said 51 of 67 economists (43 of 63 in November.)

December 4th
OECD sees ECB cutting to 2% by end 2025.

December 2nd
ECB’s Kazaks: ECB is likely to discuss a bigger December cut, but uncertainty is high.

November 29th
Traders raise ECB rate bets, see 20% chance of 50 bps cut in December.

Prior Release
ECB Interest Rate Actual 3.4% (Forecast 3.4%, Previous 3.65%)
ECB Deposit Rate Actual 3.25% (Forecast 3.25%, Previous 3.50%)

Market Reaction