OPEN LETTER/ Come to the dialogue and listen to me speak, otherwise I will cut off your scholarships, you will rot in prison. Please!

 Kliko këtu për të tjera
Voxpress:

ECB towards third interest rate cut for this year

2024-10-16 09:37:27Kosova&Bota SHKRUAR NGA REDAKSIA VOX

ECB towards third interest rate cut for this year

The European Central Bank is on track to deliver its third interest rate cut for 2024 at its meeting on Thursday, as policymakers say inflation risks are easing faster than previously expected.

Total price increases in the eurozone slowed to 1.8% in September, below the central bank's 2% target. Core inflation, which strips out the more volatile components of energy, food, alcohol and tobacco, hit a two-and-a-half-year low of 2.7%.

These numbers have generally continued to fall even after the ECB cut interest rates by 25 basis points in June, and again by the same amount in September, with the central bank cutting its key deposit facility rate from a record 4 % to 3.5% in both sessions.

As of Monday morning, money markets had priced in not only another 25 basis point cut during the October meeting, but a further cut to 3% at the next and final meeting of the year in December.

Expectations for faster monetary easing have been building since the ECB's Sept. 12 meeting, amid a series of hawkish comments from officials and cooler-than-expected inflation from eurozone states including Germany. Bank of France Governor Francois Villeroy de Galhau last week described an October rate cut as "very likely" and said such a move "will not be the last".

ECB President Christine Lagarde told European Union parliamentarians late last month that recent developments had strengthened the central bank's "belief that inflation will return to target in due course" and said it would be taken into account in October. Analysts at Citi described the signal as a "pivot" away from Lagarde's September 12 messages, which suggested a "gradual approach" to cutting rates was more appropriate, given the risks to the inflation outlook.

Even ECB hawk Joachim Nagel, head of Germany's Bundesbank, told Table Media earlier this month that the inflation trend was "good news" and that he was open to discussing another cut. Expectations for successive cuts have also been heightened by the ongoing slowdown in eurozone economic activity, as well as the tone set by the Federal Reserve's September 18 decision to proceed with a 50 basis point rate cut. 

Composite purchasing managers' index figures, which measure services and manufacturing activity, showed stagnation in the third quarter, according to consultancy Capital Economics. That would follow a tepid 0.3% increase in the second quarter. A flash reading for the third quarter will be released on October 30. The CIO says 25 basis point cuts by the Fed look likely, but doesn't rule out another surprise now.

Tighter monetary policy is ensuring growth drags on, in addition to structural issues such as declining German industrial competitiveness, Jack Allen-Reynolds, Capital Economics' deputy chief economist for the euro zone, said last week. This led him to predict that ECB rate cuts will occur both this week and at each of the central bank's upcoming meetings, until the deposit rate reaches 2.5%.

This outlook is also due to a cooling labor market and slower wage growth helping to dampen utility inflation in the coming months, he added. The ECB itself cut its annual eurozone growth forecast last month due to weaker domestic demand, now forecasting GDP growth of 0.8%, down from 0.9% previously.

Economists at Bank of America Global Research said in a note on Sunday that they expected the ECB to cut rates this week without making major changes to their guidance. "In our view, this is the start of that accelerated trajectory to 2% [rates] by June 2025 and further to 1.5% by the end of 2025," they said.

According to Berenberg chief economist Holger Schmieding, Lagarde is unlikely to correct market expectations of a December rate cut during her press conference on Thursday, thus locking in the price. new staff projections in December. However, he also warned that the central bank currently faces the risk of overreacting and easing monetary policy too soon.

Once the eurozone's growth rate returns to normal next spring, as the ECB expects, wage inflation will rebound and stronger demand will allow companies to pass on higher costs to consumers. "If the ECB cuts the deposit rate below 3% in 2025, it will probably have to raise it to 3% in late 2026 or early 2027," Schmieding said.


Në përputhje me standarded JTI

Video

SHIKO KANALIN NE YOUTUBE
×