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European Central Bank policymakers will meet on Thursday to urge policy makers to cut interest rates further as price pressures ease and economic activity in the euro zone weakens.
The 26 members of the Executive Board meet in Slovenia for regular visits from the ECB's headquarters in Frankfurt.
ECB President Christine Lagarde arrived ahead of her colleagues and was “checking prices” at a market in the capital Ljubljana, she said in a video posted on social media on Tuesday.
What she heard from traders may have reassured her. Recent data shows that inflation in the euro area has slowed significantly.
In Slovenia, the annual rate of increase in consumer prices in September was just 0.6%.
For the eurozone as a whole, the rate was 1.8%, falling below the ECB's 2% target for the first time in three years.
It has already cut rates twice this year, including at its last meeting in September, but policymakers initially signaled they would wait until December to cut rates again.
But the weaker-than-expected September data reinforced the feeling that consumer prices, which soared in the wake of the coronavirus pandemic and Russia's invasion of Ukraine, are back under control.
“Victory against inflation is in sight,” French central bank governor and ECB rate-setter François Villeroy de Galhau said last week.
“A rate cut is very likely,” he said of Thursday's meeting, adding: “This won't be the last.”
The ECB cut the key deposit rate twice by 25 basis points from a peak of 4%, in June and September.
Analysts at Deutsche Bank said there was “little clear opposition” among ECB policymakers to another rate cut of the same size on Thursday, making the move potentially “significant.” He said it is possible.
“As the first consecutive rate cut of the cycle, this would signal a shift towards a faster easing cycle,” they said.
Berenberg Bank analyst Holger Schmieding said developments in both inflation and the real economy supported the “simple” case for a rate cut.
Schmieding said wage increases to compensate for soaring food and energy prices “seem to be coming to a halt” and the ECB would assess the expected small recovery in inflation towards the end of this year. said.
On the other hand, the euro area appears to be weakening. The ECB's outlook, released last month, had already expected growth to slow to a modest 0.2% in the third quarter.
A number of negative sentiment indicators in the weeks that followed confirmed the impression that action was needed to bring relief to households and businesses.
Looking ahead, Schmieding said the ECB would accelerate the pace of rate cuts but would continue to stress that its actions were “data-driven.”
This oft-repeated phrase is likely to appear in Lagarde's statement, scheduled for 2:45pm (1:45pm Japan time) in Slovenia, after the ECB's decision is announced.
Analysts will analyze her comments to see if they hint at the thinking of ECB policymakers and the future direction of interest rates.
At the very least, Schmieding said, Lagarde does not intend to “revise the market's expectations for another 25 basis points change” at the board's next board meeting in December.
This is the ECB's fourth rate cut since it began easing borrowing costs, bringing the key deposit rate to 3%, but the bank is unlikely to stop there, people familiar with the matter said.
“The ECB is on track to cut rates at each of its next five policy meetings, including Thursday's meeting,” said Chris Hare, banking analyst at HSBC.
Hare said a series of quarterly point rate cuts through April would reduce deposits to 2.25%, but this level would have a neutral impact on the economy, calling it “slightly accommodative.” He said there was.
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