Following the European Central Bank’s third interest rate cut on Thursday, its president Christine Lagarde remained faithful, as expected, to the “doctrine” that there is no commitment to further tapering and that decisions will be taken at each meeting based on the latest available data on inflation and the economy.

The deposit rate fell to 3.25% from 3.5% in September and apparently still has a long way to go, with markets seeing it stabilize at 2% in 2025.

That Lagarde would not commit to a rate cut timetable was expected, as central bankers do not announce a future monetary policy decision until they are confident they will not need to withdraw it. That is why there has rarely been any direct or indirect pre-announcement of interest rate cuts in the history of the ECB.

However, from Thursday’s announcement and the press conference that Lagarde gave immediately afterwards, it appears that the ECB is accelerating the easing of monetary policy and that a further reduction in interest rates in December is very likely.

After Thursday’s decision, the markets estimate that there will be interest rate cuts, in the order of 25 bp. each, at the next four meetings of the ECB, i.e. in December, January, March and April. They also believe that there will be another cut in the summer, which will bring the deposit rate down to 2%.

The signs that cause optimism

– The first indication comes from the decision of the ECB, where it is noted that “the inflation expected to increase in the coming months, before retreat towards the target over the course of the next year“, while the September decision stated that inflation is “expected to decline towards the target in the second half of next year”.

Consequently, the ECB has confirmed, indirectly but clearly, that the medium-term target of 2% can be reached earlier than the forecasts of September, i.e. in the first half of 2025, as the governor of the Bank of Greece, Giannis Stournaras, had recently stated.

– Second, Lagarde said that Mr risk of a greater reduction inflation relative to the target, i.e. falling well below 2% due to the economy’s anemic recovery, is likely to outweigh the risk stay above 2% due to a higher than expected wage increase or some exogenous factor such as a spike in oil prices.

ECB Governing Council members’ conviction that the inflation target will be reached very soon has been greatly strengthened, particularly after Eurozone inflation fell to 1.7% in September and the unexpected weakening of economic activity in the same month, with based on PMI data. The latest showed that private economic activity fell in all three of the Eurozone’s biggest economies – Germany, France and Italy – last month.

Lagarde explained that the negative surprise in economic activity is weighing down the outlook for inflation. The answer he gave is typical of why the ECB unanimously cut interest rates on Thursday. “We decided to cut all our interest rates by 25 basis points because we believe that the deflationary process is on track and all the information we received in the last five weeks after the last monetary policy decision was moving in the same direction, lower. “Whether you look at inflation, headline or structural, PMIs, all categories, composite, manufacturing, services, employment – they’re down.”