A European Central Bank (ECB) interest rate cut on June 6 appears inevitable, a Reuters poll of 82 economists showed. Most also foresee two additional cuts in September and December.
Financial markets, however, are pricing in just two ECB rate cuts in 2024, a significant drop from the six expected at the start of the year, marking a rare discrepancy in which economists forecast more rate cuts than traders.
Despite positive inflation data, recent wage growth raises questions about how quickly the ECB can cut rates. The bank has hinted at a June cut in recent communications from policymakers.
All 82 economists surveyed between May 21 and 28 predicted the ECB would cut its deposit rate by 25 basis points to 3.75% on June 6. a commitment to its own rate cuts, now expected no earlier than September.
Most economists, 55 out of 82, expect the ECB’s Governing Council to cut rates again in September and December. Those estimates are up from just over half in the April survey.
The consensus of three rate cuts in 2024 comes as some economists have cut their forecasts for overall rate cuts this year. Just 22% now see deposit rates at 3.00% or lower by the end of 2024, down from nearly 40% last month.
When asked about the likelihood of the ECB cutting rates this year, nearly three-quarters of economists, 25 out of 34, think smaller rate cuts are more likely than more. Of the 77 major respondents to surveys both this month and last, more than a quarter expect smaller rate cuts.
The average response of 35 economists suggests the ECB, which raised rates by 450 basis points between July 2022 and September 2023, will cut its deposit rate by 150 basis points to 2.50% in the coming cycle.
However, with wage growth expected to remain above 3% (the level the ECB links to its 2% inflation target) until at least 2026, inflation could remain high even longer.
Inflation is forecast to rise to 2.5% this month from 2.4% in April and is not expected to reach target until the third quarter of 2025, according to a separate Reuters poll.