ECB set to cut rates again as inflation cools

ECB set to cut rates again as inflation cools

The ECB has started easing rates this year following a record hiking cycle
The ECB has started easing rates this year following a record hiking cycle. Photo: Daniel ROLAND / AFP
Source: AFP

Don't miss out! Get your daily dose of sports news straight to your phone. Join YEN's Sports News channel on WhatsApp now!

European Central Bank policymakers meet on Thursday with fading price pressures and weaker economic activity in the eurozone nudging them towards making another cut to interest rates.

The 26 members of the governing council are gathering in Slovenia, as they make one of their regular tours away from the ECB's headquarters in Frankfurt.

ECB President Christine Lagarde arrived ahead of her colleagues, "checking on prices" at a market in the capital Ljubljana, she said in a video posted on social media on Tuesday.

What she heard from traders might well have reassured her -- recent data show that inflation in the eurozone has slowed considerably.

In Slovenia, the annual rate of consumer price rises was a mere 0.6 percent in September.

For the whole of the eurozone, the figure was 1.8 percent -- the first time it has been below the ECB's two-percent target in three years.

Read also

Lower rates, surging stock market fail to ignite US IPO market

After cutting rates twice already this year, including at their last meeting in September, policymakers initially signalled a preference to wait until December to cut again.

But September's below-expectations reading has added to the sense that consumer prices are back under control after they soared in the wake of the coronavirus pandemic and the Russian invasion of Ukraine.

"Victory against inflation is in sight," French central bank governor and ECB rate-setter Francois Villeroy de Galhau said last week.

"A cut is very likely," he said of Thursday's meeting, adding that "it will not be the last".

'Significant'

From its peak of four percent, the ECB has cut its key deposit rate in two increments of 25 basis points, once in June and another time in September.

Among ECB policymakers, there was "little apparent opposition" to another cut of the same size on Thursday, Deutsche Bank analysts said, describing the move as potentially "significant".

Read also

UK inflation hits three-year low, fuelling rate-cut hopes

Investors are looking for clues on the rate path ahead from ECB president Christine Lagarde
Investors are looking for clues on the rate path ahead from ECB president Christine Lagarde. Photo: Daniel ROLAND / AFP
Source: AFP

"As the first back-to-back cut of the cycle, it would signal a pivot into a faster easing cycle," they said.

Trends in both inflation and the real economy supported a case for a "straightforward" cut, Berenberg bank analyst Holger Schmieding said.

A surge in wages to make up for spikes in food and energy prices "seems to be petering out", Schmieding said, and the ECB would look through a small, anticipated rebound in inflation towards the end of this year.

The eurozone meanwhile has looked weak. The ECB's forecasts, published last month, already predicted that growth would slow to a meek 0.2 percent in the third quarter.

A slew of negative sentiment indicators in the weeks that followed have confirmed the impression that action is needed to bring relief to households and businesses.

More cuts?

Looking ahead, the ECB would continue to stress its actions were "data dependant" even as it increased the pace of its interest rate cuts, Schmieding said.

Read also

China set to post slowest quarterly growth this year: analysts

The oft-repeated phrase is likely to appear in Lagarde's planned statement at 2:45 pm in Slovenia (1245 GMT) after the ECB's decision has been announced.

Analysts will parse her remarks for any hints of the thinking among ECB policymakers and the future path of rates.

At the very least, Lagarde would not "correct market expectations for another 25 basis point move" at the ECB's next meeting in December, Schmieding said.

The fourth cut since the ECB started easing borrowing costs would put the key deposit rate at three percent, but the bank was unlikely to stop there, according to observers.

"The ECB is on a path to cut interest rates at each one of the next five policy meetings," including Thursday's gathering, HSBC bank analyst Chris Hare said.

A string of quarter-point cuts through to April would lower the deposit to 2.25 percent, a level which was having a neutral effect on the economy to being "slightly accommodative", Hare said.

New feature: Сheck out news that is picked for YOU ➡️ click on “Recommended for you” and enjoy!

Source: AFP

Authors:
AFP avatar

AFP AFP text, photo, graphic, audio or video material shall not be published, broadcast, rewritten for broadcast or publication or redistributed directly or indirectly in any medium. AFP news material may not be stored in whole or in part in a computer or otherwise except for personal and non-commercial use. AFP will not be held liable for any delays, inaccuracies, errors or omissions in any AFP news material or in transmission or delivery of all or any part thereof or for any damages whatsoever. As a newswire service, AFP does not obtain releases from subjects, individuals, groups or entities contained in its photographs, videos, graphics or quoted in its texts. Further, no clearance is obtained from the owners of any trademarks or copyrighted materials whose marks and materials are included in AFP material. Therefore you will be solely responsible for obtaining any and all necessary releases from whatever individuals and/or entities necessary for any uses of AFP material.