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financial associated press, september 30 (editor shi zhengcheng)speculations about the european central bank's "interest rate cut in october" finally received a strong official tone.

on monday local time, european central bank president christine lagarde appeared in the new european parliament and attended a hearing of the economic and monetary affairs committee. during the speech,lagarde made clear that euro zone policymakers are becoming "more optimistic" about being able to control inflation and said that sentiment would be reflected in the next monetary policy meeting。

(lagarde takes a photo with aurore lalucq, the new chairman of the economic and monetary affairs committee, source: x)

as the most critical sentence of lagarde's testimony, the "top leader" of the european central bank said: euro zone inflation data may temporarily rise in the fourth quarter, because the earlier decline in energy prices will no longer be included in the annual data. butthe latest developments strengthen our confidence that inflation will return to target in a timely manner. we will consider this at our next monetary policy meeting in october.

(transcript of testimony published by ecb)

in september, ecb staff predicted that overall inflation would be 2.5% this year, falling to 2.2% in 2025 and 1.9% in 2026.

in the face of lagarde's hint, the bond market's expectation for the probability of the european central bank cutting interest rates by 25 basis points in october slightly increased to 85%.

“economic headwinds” are on the table

the "latest development" lagarde mentioned was the generally weaker-than-expected economic data from eurozone economies that have been hotly discussed by all parties in the past two weeks.

not only did inflation data in spain and france weaken last week, but eurozone pmi survey data also fell below the boom-bust line beyond expectations. the inflation data on italy and germany on monday also clearly showed the actual weakening.data from a range of countries indicate that the euro zone's september inflation rate, to be released on tuesday, may fall below the 2% policy target for the first time since mid-2021.

(euro area inflation annual rate, source: tradingeconomics)

therefore, from the probability of interest rate cuts implied by the bond market to the overnight revision of forecast reports by economists, all point to the european central bank cutting interest rates at its meeting on october 17.

while emphasizing the risks to economic growth, lagarde also tried to convey some confidence in long-term growth. she said,some indicators show that the economic recovery faces headwinds, but it is expected that as residents' real income increases, household consumption will increase, and the recovery will gradually strengthen.the latest forecast of the european central bank is that the euro area economy will grow by 0.8% in 2024, and the growth rate will gradually accelerate to 1.3% and 1.5% in the next two years. at the same time, unemployment will remain at current low levels.

the european central bank cut its key deposit rate for the second time in this cycle of interest rate cuts in early september this year. after that, a series of officials said they needed to wait for more comprehensive economic data before taking action. however, with the growth outlook deteriorating, the market generally believes that the statement two weeks ago is outdated.