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Policy doves at the European Central bank are gearing up for a potential interest rate cut in response to recent weaker economic indicators. The possibility of a rate cut next month is gaining traction among those in favor of more accommodative monetary policy, despite initial expectations for rates to remain unchanged. Disappointing business surveys, German sentiment data, and a significant slowdown in wages have bolstered the case for lower rates. Additionally, falling energy costs and concerns about Inflation falling below target levels are adding to the pressure for a rate cut.

However, there are opposing views within the ECB, with some policymakers advocating for a more cautious approach based on hard data such as GDP figures and wage data, which will not be available until the December meeting. Some suggest a compromise where rates remain unchanged in October but signal a potential cut in December if economic data fails to improve.

While the decision on Interest rates is still pending, recent weak data has led to increased market expectations of a rate cut in October. Traders are now pricing in a higher likelihood of a 25 basis point rate cut. With swing voters yet to make a final decision, the outcome of the October meeting remains uncertain.

Some policymakers, like Slovakia’s Peter Kazimir, have indicated that a rate cut in October is unlikely, with a preference for waiting until December. However, market analysts are forecasting a series of rate cuts in the coming months to support economic recovery. Despite differing opinions within the ECB, the possibility of a rate cut in October is becoming more pronounced due to ongoing economic uncertainties.

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