September Rate Cut by ECB Uncertain

• Recent wage growth and economic stability in the eurozone may prevent the ECB from making a significant rate cut in September.
• Saxo Bank suggests that while easing inflationary pressures could allow for a rate cut, it’s far from certain.
• The ECB’s upcoming macroeconomic projections could revise growth downward and inflation upward, making an October rate cut more likely.

August 23 (FFN) – A significant reduction in interest rates by the European Central Bank (ECB) in September is uncertain, according to recent reports. Despite consistent data showing a decline in inflation, recent wage growth and overall economic stability in the eurozone might deter the ECB from proceeding with the anticipated cuts, as explained by Saxo Bank.

While easing inflationary pressures due to falling input costs might give the ECB room to consider a rate cut in September, nothing is guaranteed, said Althea Spinozzi, Head of Forex Strategies at Saxo Bank. Wages in the eurozone grew by 3.6% in the second quarter, exceeding the EU’s 2% inflation target, which could sustain inflationary pressures, especially in the services sector.

The composite Purchasing Managers’ Index (PMI), reflecting economic growth, was expected to rise in August from 50.2 to 51.2, driven by support from French services linked to the Olympic Games.

Although markets have priced in a September rate cut, Saxo Bank warns that the ECB’s upcoming macroeconomic projections might revise growth downward and inflation upward. This could make a rate cut in October more probable.

Spinozzi also noted concerns about overpriced German bonds, which reflect an optimistic outlook that may not align with economic reality. These bonds have seen significant gains in the last quarter.

“Economic growth remains supported, and strong wage growth suggests persistent inflationary pressures, particularly in services and core inflation, which the ECB closely monitors,” concluded the experts, casting doubt on the market’s expectations of aggressive rate cuts.