Frankfurt, October 14 (FinanceFlashNews.com) – Financial markets are predicting that the European Central Bank (ECB) will cut interest rates again this week as inflation in the eurozone continues to drop and concerns about slow economic growth mount. Analysts also expect the ECB to accelerate its pace of monetary policy easing. This report is based on AFP.
Inflation Falls Below ECB’s Target
In September 2024, inflation in the 20 countries of the eurozone fell to 1.8%, marking the first time since 2021 that it dipped below the ECB’s 2% target. While inflation is expected to rise slightly by year-end, there is growing confidence that the ECB has gained control over consumer prices.
High Probability of Rate Cut
Francois Villeroy de Galhau, Governor of the French central bank and a member of the ECB’s Governing Council, stated last week that a rate cut is very likely. The ECB Governing Council will meet on Thursday (October 17) in Slovenia to decide on whether to reduce rates further and possibly speed up the pace of cuts.
The ECB has already cut rates twice this year—in June and September—each time by 25 basis points, bringing the deposit rate down to 3.5%.
Economic Slowdown in the Eurozone
New data from the eurozone indicate weakening economic activity and softer price pressures, suggesting that current interest rates may be too restrictive for the eurozone’s economy. Frederik Ducrozet, chief economist at Pictet Wealth Management, commented that further rate reductions are expected to reflect the latest economic trends.
Higher borrowing costs have contributed to the slowing pace of inflation, with ECB President Christine Lagarde expressing confidence that inflation will return to the target level in due time.
Challenges Facing the ECB
The ECB still faces significant challenges, including Germany’s economic woes, as Europe’s largest economy struggles with stagnation. Berlin announced last week that it now expects the German economy to contract by 0.2% in 2024, marking the second consecutive year of decline. Additionally, geopolitical tensions in the Middle East could drive up oil prices, reigniting inflationary pressures in the eurozone.
Table: ECB Interest Rate Reductions in 2024
| Date | Rate Reduction | New Deposit Rate (%) |
|---|---|---|
| June 2024 | 25 basis points | 3.75 % |
| September 2024 | 25 basis points | 3.5 % |
| Expected Reduction | October 17, 2024 | 3.25 % |
Key words: ECB, interest rates, eurozone inflation, monetary policy, economic growth
