A European Central Bank (ECB) interest rate cut on June 6 appears certain, Reuters’ results after polling 82 economists showed. The majority also foresee two additional cuts in September and December.
Financial markets, however, are pricing in only two ECB rate cuts for 2024, a significant drop from the six expected at the start of the year, marking a rare discrepancy where economists predict more rate reductions than traders do.
Despite positive signs on inflation data, recent wage growth raises questions about how quickly the ECB can reduce rates. The bank has heavily hinted at a June cut through recent communications from policymakers.
All 82 economists polled between May 21-28 predict the ECB will lower its deposit rate by 25 basis points to 3.75% on June 6. Yet, the debate over the ECB’s room to maneuver has intensified, especially as the U.S. Federal Reserve remains non-committal about its own rate cuts, now anticipated in September at the earliest.
Most of the economists, 55 out of 82, expect the ECB's Governing Council to cut rates again in September and December. These estimates have grown from just over half in an April survey.
The consensus for three rate cuts in 2024 comes as some economists scale back their predictions for total reductions this year. Only 22% now see the deposit rate at 3.00% or lower by the end of 2024, down from nearly 40% last month.
When asked about the likelihood of ECB rate cuts this year, nearly three-quarters of economists, 25 out of 34, believe fewer cuts are more likely than additional ones. Of the 77 common contributors to both this and last month's surveys, over one-quarter now anticipate fewer rate cuts.
The median response from 35 economists suggests the ECB, which increased rates by 450 basis points between July 2022 and September 2023, will reduce the deposit rate by 150 basis points to 2.50% in the upcoming cycle.
However, with wage growth expected to stay above 3%—the level the ECB associates with its 2% inflation target—until at least 2026, inflation could remain high for longer.
Inflation is projected to rise to 2.5% this month from 2.4% in April, according to a separate Reuters poll, and it is not expected to reach the target until the third quarter of 2025.