The ECB will make its second interest rate cut in September

Investing.com – The European Central Bank meets later this month, and Goldman Sachs expects the central bank to ease monetary policy again after starting its rate-cutting cycle in June.

Officials said overall that the incoming data broadly confirms the baseline scenario and that policy rates may be cut further if the disinflation process remains on track, the bank’s analyst said in an Aug. 30 note .

Moreover, a number of members cited the recent slowdown in wage growth as good news, and some argued that increasing downside risks to the growth outlook strengthened the case for easing policy tightening.

“Taken together, we think recent commentary indicates a modest shift in signaling from 1-2 further cuts this year before the summer break to a further 2 cuts now, with little appetite to cut policy rates at a faster pace at this stage,” said Goldman Sachs.

Outlook indicators and comments from some ECB officials suggest a small downgrade to near-term growth, which would see growth in 2024 and 2025 fall by -0.1pp each to 0.8% and 1.3% respectively %.

“We expect core inflation to be revised upwards by +0.1 pp to 2.9% in 2024 and +01 pp to 2.3% in 2025 given a stronger recent run rate, but remains unchanged in 2026,” Goldman added. “Lower oil prices and a stronger euro are likely to be offset by lower rates and higher gas prices, which would leave forecasts for headline inflation unchanged in 2024, 2025 and 2026.”

With all of this in mind, “we still expect the Board of Governors to deliver a second 25bp rate cut on September 12, but look for limited changes in its communication,” Goldman said.

“In particular, we expect the Council to maintain its data-driven and meeting-by-meeting approach, without explicit guidance on the future policy path. We maintain our forecast for quarterly cuts to a terminal rate of 2.25%, but see risks tilted to a sequential pace, particularly in H1 2025.”