ECB should make October a 'live' meeting, SocGen says
LONDON, Sept 23 (Reuters) -The European Central Bank should show it is more receptive to incoming data, thereby making its October meeting a "live" one, as inflation subsides and business activity deteriorates, Societe Generale said in a note on Monday.
The ECB, which cut euro zone interest rates for the second time this year at its meeting two weeks ago, has signalled a December cut is likely, but said it would need more data to consider an October cut.
Surveys on Monday showed euro zone business activity contracted sharply and unexpectedly this month, as the dominant services sector flat-lined, while a downturn in manufacturing worsened.
WHY IT’S IMPORTANT
The ECB needs to ensure an already softening economy does not tilt into full-on recession. With a number of key inputs like food and energy prices subsiding, inflation is falling. SocGen said another quarter-point rate cut might not affect the outlook for growth or inflation, but it would help with overall confidence. By bringing October into play, the ECB could counter the risk of falling behind the curve, SocGen said.
KEY QUOTE(S)
"With updated economic projections, weak PMIs and inflation likely below target in September, we think there is a pressing need for the ECB to make the October meeting a live one rather than waiting for more data."
"While there is policy room, the ECB should thus err on the side of caution while also showing that it is truly data dependent. For now, we do not change our ECB call (next cut being in December), partly as the ECB has shown a tendency to stick to past signalling."
MARKET REACTION
Monday's business activity surveys knocked the euro further below late August's 13-month high above $1.12 against the dollar EUR=EBS. And yet the derivatives market shows traders are placing just a 32% chance of an October cut.
GRAPHIC
Euro zone inflation and ECB interest rates https://reut.rs/3XvkJyy
Reporting by Amanda Cooper; Editing by Hugh Lawson
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