The European Central Bank’s pressure to lower the key interest rate already in October is growing

Several banks have recently made early estimates of when the next interest rate cut by the European Central Bank (ECB) will take place.

The financial market now considers it very likely that the ECB will lower its key interest rate by 0.25 percentage points already in October.

“Based on the new data, it seems more and more likely that the ECB will lower its key interest rate in October. Inflation has slowed down to less than two percent in several large euro countries and at the same time economic growth seems to have slowed down,” says the chief analyst of the financial company Nordea Jan von Gerich.

As recently as mid-September, Nordea and many other banks estimated that the ECB would cut its key interest rate next in December. The purchasing managers’ index published last week portends that the eurozone economy contracted in September.

European In the largest national economy in Germany, the increase in consumer prices, or inflation, slowed down to 1.8 percent in September, according to preliminary data published on Monday.

More information is expected on Tuesday, when the European statistical authority Eurostat publishes its preliminary data on September inflation in the euro area.

In August, inflation in the euro area was 2.2 percent, i.e. only slightly faster than the central bank’s price stability target.

“The latest data confirm our confidence that inflation will return to our target in time. We will take this into account at our monetary policy meeting in October,” said the President of the European Central Bank Christine Lagarde on Monday at a parliamentary hearing.

According to the central bank’s price stability objective, inflation must be two percent in the medium term.

The ECB started interest rate cuts in June, when the key interest rate was lowered by 0.25 percentage points to 3.75 percent. In July, it took a pause, but in September decided to cut the key interest rate from 3.75 percent to 3.50 percent.

Finance group OP’s market economist Jari Hännikäinen thinks it is likely that the estimate of the next interest rate cut will be changed on Tuesday.

Officially, OP still estimates that the ECB will lower its key interest rate next time in December.

“The general picture of the economy in the euro area has clearly weakened and inflation has slowed down in many euro countries, which is why the market’s expectations of the October interest rate cut have increased. We are waiting for Eurostat’s inflation data to be published on Tuesday, after which we will reconsider our assessment of the next interest rate cut,” says Hännikäinen.

The central bank’s interest rate cuts are apt to increase household consumption and corporate investment. The interest rate cut is transmitted to the economy in stages and typically reaches its full effect within a good year.