ECB set to surprise markets with rate cut as global central banks eye easing moves

ECB likely to cut rates Thursday, reversing stance amid growth concerns and high rates

The European Central Bank (ECB) is expected to drive the global shift toward monetary easing this week with an interest-rate cut that seemed off the table just a month ago. Economists predict this third quarter-point reduction will mark the beginning of more aggressive efforts by officials to shield the eurozone from the economic slowdown caused by prolonged high borrowing costs.

At the press conference following Thursday’s meeting near Ljubljana, ECB President Christine Lagarde may face questions about the trajectory for further cuts and what changed since September’s decision. With only five weeks between meetings and limited new data available, officials seem to have pivoted from their prior caution over inflation to address signs of economic contraction reflected in survey data.

The abrupt shift follows Slovakian central bank governor Peter Kazimir’s earlier assertion that no action would come before December. While Kazimir remains the only vocal opponent of a cut on Thursday, other hawkish policymakers could oppose the move behind closed doors.

Economists now expect the ECB to accelerate its easing path, bringing borrowing costs down to a level that supports economic growth by the end of 2025, according to a Bloomberg survey.

US and Canada

In the US, reports will provide insight into consumer, manufacturing, and housing trends. Thursday’s retail sales data is forecast to show steady growth, signaling resilient consumer spending, while the Atlanta Fed’s GDPNow model points to strong personal consumption driving Q3 economic growth. However, factory output data may highlight ongoing struggles in manufacturing.

Housing starts, due Friday, are expected to show a slowdown in residential construction. Meanwhile, the impact of Hurricanes Helene and Milton on economic data should be modest, with greater effects expected in October figures. Fed speakers this week include Christopher Waller, Neel Kashkari, and Mary Daly.

North of the border, the Bank of Canada will be watching September’s inflation data after August’s headline rate hit the 2% target. A slight inflation uptick wouldn’t derail the bank’s easing plans, which account for some volatility on the path to stable inflation.

Asia

China will be in focus, with Q3 GDP data expected to confirm the economy is growing below the 5% target. Recent easing measures and additional support from Beijing reflect efforts to counter the slowdown. Data on industrial output, retail sales, and property investment will also offer further insight.

In Southeast Asia, central bank actions take center stage. The Monetary Authority of Singapore will announce its policy stance on Monday. The Philippines’ central bank is expected to cut rates, while Thailand and Indonesia are likely to hold steady. In Japan, inflation is set to exceed the Bank of Japan’s target for the 27th consecutive month, while Australia’s labor data on Thursday may indicate continued labor market tightness.

Europe, Middle East, and Africa

In addition to the ECB decision, UK data on wages, inflation, and retail sales will attract attention. Bank of England Governor Andrew Bailey has hinted at more aggressive easing, contingent on the inflation outlook. Economists expect September inflation to fall below 2% for the first time since April 2021.

In Germany, the ZEW investor survey will coincide with the government’s acknowledgment that the economy is set to shrink this year. Italy’s budget submission, due Tuesday, may also draw focus, with Fitch and S&P Global poised to update Italy’s credit rating.

In Israel, inflation is expected to rise amid the ongoing conflict, while South Africa’s central bank will provide its monetary policy outlook. Namibia is set to cut its interest rate following South Africa’s recent reduction. Turkey’s central bank will likely maintain its rate at 50%, waiting for further inflation declines before easing policy. Egypt is also expected to keep rates steady as inflation accelerates.

Latin America

Chile is likely to announce a quarter-point rate cut to 5.25%, continuing its aggressive easing cycle, which has seen 600 basis points of reductions so far. Other major Latin American central banks—Peru, Brazil, Colombia, and Mexico—have moved more cautiously in their rate-cutting strategies.

Colombia will release August data on industrial production, manufacturing, and retail sales, following solid July figures. GDP-proxy readings from Brazil, Colombia, and Peru may show headwinds emerging after a strong first half of the year.