European central banks quickening pace of their monetary easing

Summary

The European Central Bank (ECB) initially adopted a cautious and gradual approach to rate cuts during the early stages of its monetary easing cycle. However, given some deterioration in sentiment surveys, evidence of subsiding inflationary pressures, and recent benign comments from ECB President Lagarde, we now expect a more regular pace of rate cuts from the ECB over the next several months.

We look for the ECB to cut rates by 25 bps at its October 2024, December 2024, January 2025 and March 2025 announcements. As ECB policy rates move closer to a neutral level, we see the central bank paring back the pace of its rate cuts to a quarterly frequency. We see the ECB cutting interest rates by 25 bps at the June 2025 and September 2025 meetings, bringing its policy rate to a low of 2.00% by late next year.

The Riksbank is also set to ease monetary policy at a faster pace, after it cut its policy rate last week by 25 bps to 3.25%, lowered its growth and inflation forecasts, and offered dovish policy guidance in its accompanying statement. Soft data and dovish guidance means we now see a 50 bps rate cut in November, and with regular 25 bps rate cuts at each meeting thereafter, we expect the Riksbank's policy rate to reach a low of 2.00% by the end of Q1-2025.

The Swiss National Bank (SNB) lowered its policy rate by 25 bps to 1.00% last week, while also noting a significant reduction of inflationary pressures and a recent strengthening of the Swiss franc. Given the potential for further franc gains against a backdrop of European Central Bank (and Federal Reserve) easing, and given the subdued outlook for Swiss inflation, we now expect the SNB to ease monetary policy further, and forecast a 25 bps rate cut in the SNB's policy rate, to 0.75%, at its December monetary policy announcement.

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