European Central Bank cuts rates again, future moves unclear

The European Central Bank (ECB) has cut interest rates again on Thursday as inflation eases and economic growth falters, but offered little insight into its future moves, despite market expectations of continued policy easing.

The ECB lowered its deposit rate by 25 basis points to 3.50%, following a similar cut in June, with inflation nearing the 2% target and the economy on the brink of recession.

With the rate cut anticipated, investors are now focused on what’s next. However, the ECB stuck to its "data-dependent" and "meeting-by-meeting" approach, offering no commitment to a specific rate path. "The Governing Council is not pre-committing to any particular rate path," the ECB said.

Attention now turns to ECB President Christine Lagarde’s upcoming press conference, where she is expected to address the rate outlook and the potential impact of U.S. Federal Reserve rate cuts on ECB policy. Economists expect Lagarde to leave the door open for another rate cut in October by signaling that future meetings remain “live".

While domestic inflation remains high due to rising wages, the ECB noted that wage pressures are easing and corporate profits are cushioning the impact of higher labor costs on inflation.

Dovish policymakers, mostly from southern Europe, argue that recession risks are growing and that high rates are stifling growth more than necessary, increasing the chance inflation may fall short of the target. However, inflation-focused hawks maintain that the labor market is too strong, with persistent price pressures in services, suggesting the risk of another inflation surge remains.