ECB’s Lagarde hints at October rate cut as inflation slows

European Central Bank President Christine Lagarde hinted on Monday at another cut in interest rates at the Bank’s next policy meeting, amid increasing signs that inflation is beaten and that the economy is struggling.
Lagarde told a regular hearing in the European Parliament that “the latest developments strengthen our confidence that inflation will return to target in a timely manner,” adding: ”We will take that into account in our next monetary policy meeting in October.”
Lagarde made her comments only an hour after fresh data suggesting that headline inflation in Germany, the eurozone’s largest economy, had fallen below 2 percent in September, rounding out a picture already evident in similar numbers from France, Italy and Spain. 
Those four countries together account for nearly three-quarters of the eurozone’s economy. The numbers are part of a broader pattern of data pointing to a slowdown in Europe. Germany’s leading economic institutes revised down their joint forecast for this year last week, and now expect the economy to shrink for the second year in a row. 
News agency reports on Monday suggested the federal government in Berlin will adjust its own updated forecasts accordingly in October.The German release, which showed inflation falling to 1.8 percent under the influence of cheaper energy and increasing signs of weakness in most services sectors except holidaying, “has everything the ECB needs to continue cutting rates,” ING’s global head of macro Carsten Brzeski said in a note to clients.
At its September meeting, the ECB had cut its key deposit rate for a second time this year, taking it down to 3.50 percent from 3.75. However, Lagarde had indicated at the time that the Bank would probably wait until December before moving again, due to ongoing uncertainties around lingering inflation, especially in the services sector. 
Since then, a sequence of decidedly downbeat business surveys and a barrage of negative news from the auto sector in particular appear to have provided “strong arguments” for those in the Governing Council, such as Bank of Portugal Governor Mario Centeno, who have been pressing for more urgent action. 
On the face of it, the biggest contributor to the slowdown in the national inflation numbers in September was a sharp drop in energy prices.   Oil prices in particular have slumped in recent weeks on concerns of an economic slowdown in the U.S., China and Europe, the world’s three biggest oil consumers. However, the national data have also shown underlying inflation pressure — in the form of services inflation — easing, albeit more gently.