At its last meeting in July, the European Central Bank (ECB) kept its cards close to its chest, stressing its data-dependency and refraining from pre-committing to the future path of interest rates, says Ulrike Kastens, economist for Europe at asset manager DWS as she looks ahead to the ECB meeting.

"Comments from various ECB members with clear interest rate positions were also rather scarce. Nevertheless, we fully expect a further cut of 25 basis points in the deposit rate to 3.50 percent as the data situation allows. In addition to the expected moderation in wage growth and the decline in the inflation rate to 2.2% in August, the main arguments are likely to be the projections: while the inflation forecasts are likely to remain almost unchanged, economic expectations are now coming more to the fore. Weak domestic demand and a lack of improvement in industrial sentiment are likely to lead to a downward revision of the GDP forecast. In addition, the current interest rate level is higher in real terms than in September 2023, when the ECB last raised key rates."

"With the expected rate cut, the ECB should then take its monetary foot off the brake a little. Other than that, everything should remain the same: the focus will remain on data dependency, without any pre-commitment. We still expect further rate cuts to be very gradual. The next important date for a rate decision is likely to be December."