Europe: October ECB Governing Council Outlook

■ The ECB's October Governing Council is expected to keep its policy rate steady, and the market generally believes there will be no major surprises.  

■ Besides the ECB, the IMF also issued a relatively stable outlook for the Eurozone economy and prices, with expectations of minimal additional rate cuts. 
  
   This article reviews the developments of the European Central Bank (ECB) Governing Council, which will announce its decision on October 30th. The market mainly expects the central bank's deposit rate to stay at 2.00%. If that happens, it will mark the third consecutive meeting where the rate remains unchanged. Since the September Governing Council, ECB officials' statements have generally been seen as evidence that the ECB does not feel an urgent need to act. Specifically, Vice President De Guindos stated on September 30th and October 6th that "given recent inflation trends, the current interest rate level is appropriate." Additionally, Executive Director Lane, who is also the Chief Economist, said on October 6th that if downside risks to inflation increase, additional rate cuts would be appropriate; if upside risks grow, it would be better to keep rates unchanged. Managing Director Christine Lagarde also mentioned on October 14th, "We are well-positioned to withstand future shocks." 
 
   Furthermore, along with the IMF's October update to its World Economic Outlook (WEO), a view is emerging in financial markets that the ECB will keep its policy interest rate unchanged until at least mid-2026. The report's inflation forecasts (HICP) are 2.1% for 2025 and 1.9% for 2026, suggesting inflation will return to near the ECB's 2.0% target this year and possibly decline slightly next year. Economic growth is projected at 1.2% in 2025 and 1.1% in 2026, indicating no signs of a recession soon. These projections align broadly with the ECB staff forecasts released at the September Governing Council meeting. While October's economic indicators showed a concerning 4.3% month-over-month drop in German industrial production in August, preliminary October composite PMI data showed the Eurozone reaching its highest level since May 2024, with Germany also hitting its highest since May 2023, hinting at a possible rebound in economic sentiment. 

 
   Overall, this ECB meeting is expected to be quite unpredictable. Suppose the preliminary Eurozone real GDP figures for July-September—due before the decision—are close to market expectations (a 1.2% month-over-month increase). In that case, expectations for further rate cuts will likely be muted. Meanwhile, US-China trade tensions and the US government's tariffs might continue to dampen price growth in the Eurozone. Markets will monitor President Lagarde's press conference for her view on current price trends and German manufacturing activity. Additionally, the latest Eurozone inflation data—the preliminary October Consumer Price Index (HICP)—is set to be released on October 31st.