Due to the decrease in inflation in the Eurozone in September
The European Central Bank is expected to proceed with the third reduction in interest rates this year and the second in a row, after the one in September (ECB) at today’s meeting, Thursday, October 17.
The decrease in inflation to 1.8% in the Eurozone in September, combined with the weakening of its economy, make a further cut in the ECB’s deposit rate by 25 basis points to 3.25% is almost inevitable.
The ECB has made it clear that monetary policy decisions will be taken at each meeting based on available data, wanting to have freedom of movement depending on the course of the inflation towards the medium-term target of 2% while taking into account the course of the economy.
Although inflation is expected to pick up in the last quarter of the year because fuel prices will compare to last year’s low levels, unlike in previous months, it is now clear that it is moving towards the target.
The governor of the Bank of Greece, Giannis Stournarassaid in an interview with the Financial Times that the target is likely to be reached from the first quarter of 2025, earlier than the ECB predicted in September. For this reason, Mr. Stournaras was in favor of reducing interest rates by 25 bp. both in October and at the next meeting in December, while he was in favor of continuing to reduce them in 2025, as long as the de-escalation of price increases continues.
For greater confidence in the achievement of the inflation target, which will be taken into account at the upcoming meeting, the president of the central bank said, Christine Lagarde, speaking to the European Parliament, foreshadowing for her part a possible reduction in interest rates next Thursday.
The sluggish course of the economy makes the faster easing of the ECB’s monetary policy even more imperative. After a 0.3% rise in Eurozone GDP in the first quarter of 2024, it slowed in the second quarter to 0.2%, while the S&P Global Momentum Survey showed that private economic activity slowed slightly in September.
For the first time, in fact, since the beginning of the year, all three major economies of the region – Germany, France and Italy – were operating in conditions of contraction of the private economy.
So, the combination of these data makes today’s decision very likely. It is no coincidence, after all, that none of the members of the Board of Directors of the ECB, with the exception of Slovakia’s Peter Kazimir, has not expressed any objection to the prospect of another interest rate cut.
Even well-known “hawks” on the board, such as Germany’s Joachim Nagel, said he was open to a reduction. But the Dutchman, Klaas Knott, had declared that he does not see anything strange with investors’ expectations for a quick reduction in interest rates.
Markets take their decline in October and December as a given, while they see it continuing at a rapid pace in 2025.
