Societe Generale said it expects the European Central Bank to continue lowering the deposit rate next Thursday, reducing it by 25bps to 3.25%.

This is despite having earlier signalled the intention to hold in October and gather more data ahead of the December meeting, wrote the bank in a note to clients. However, data have intruded, with the downside risks to growth rising materially, suggesting that both headline and core inflation could be lower than previously expected.

This implies added urgency to move the policy stance closer to neutral, stated SocGen. However, given that the bank doesn't have full visibility on economic trends, in particular the labor market and wage growth, it thinks it's still too early to expect rate cuts at every meeting or by any given size.

As a consequence, SocGen keeps its quarterly rate cut path after October and still ends at its assessment of neutral (2.5%) by mid next year. The bank expects the ECB to refrain from giving any guidance for the December meeting other than confirming that it will do whatever is necessary to fulfill the mandate in view of the data.

No new staff forecasts will be published next week, but SocGen estimates the communication to be more concerned about the growth outlook and more confident about wage growth moderating next year.

The ECB will be in a better position in December, with new forecasts, to determine whether the path to neutral needs to be accelerated or if strong 3Q labor market data suggests that it might even need to keep rates unchanged, added the bank.