European Central Bank (European Central Bank) cut it interest rate Inflation again Eurozone The economy is slowing and economic growth is stagnating. But no clear guidance was given on future actions, even as investors expect easing to continue over the coming months. Deposit rates were cut by 25 basis points to 3.5%, a move that was expected following a similar cut in June. Inflation is now at European Central Bankagainst the 2% target. Eurozone The economy is on the brink of recession.
The cuts were widely expected, but investors are now looking at the next steps and European Central Bank Policy may be influenced by the US Federal Reserve, which is also expected to start cutting interest rates soon. European Central Bank President Christine Lagarde The governor refrained from committing in advance to a particular interest rate path and stressed the bank's “data-dependent” approach of considering multiple indicators before deciding on further measures. He noted that September's inflation data could be distorted by statistical base effects.
The market barely reacted to the move or the lack of forward guidance, but analysts called it European Central BankAccording to Carsten Breszke, global head of macro at ING, European Central Bank Given the lack of track record in forecasting rising inflation, it is likely that the process will be carried out with caution. European Central Bank The Bank of Japan wants to fully assess the situation before making any further aggressive rate cuts.
Lagarde He said the inflation picture in the euro area was mixed. Wages continued to rise, while overall labor cost pressures were easing. But more cautious policymakers in southern European countries said they were Eurozone Countries argue that high interest rates are stifling growth and raising the risk of a recession, while inflation hawks warn that a still-overheated labor market and underlying price pressures, especially in the service sector, could spark a new spike in inflation.
New predictions European Central Bank Staff slightly revised down their forecast for economic growth this year but now expect inflation to return to target by the second half of next year. That has divided policymakers over the pace of future rate cuts, with hawkish members favoring quarterly cuts in line with the latest growth and wages data.
Investors are similarly divided: Markets are well priced in the possibility of further rate cuts by December, but the likelihood of another cut in October ranges from 30% to 50%.
In addition to the reduction in deposit rates, the refinancing rate was also reduced by 60 basis points to 3.65%. European Central Bank This is called a technical adjustment. The spread between these rates, which had been set at 50 basis points since 2019, was narrowed to 15 basis points as part of an effort to encourage future interbank lending. While its revival is still a few years away, this adjustment is expected to be a long-term solution. European Central BankLong-term strategy. Currently, banks have 3 trillion euros of excess liquidity, and deposit rates are European Central BankWhen this liquidity is reduced, European Central Bank Refinancing rates should rise and central banks should regain their role as benchmarks.
Additionally, the rarely used marginal lending rate was cut by 60 basis points to 3.9%.
European Central Bank president Lagarde He also pointed to a recent report by his predecessor, Mario Draghi, in which he called for sweeping reforms to strengthen Europe's economy. Lagarde The report states:Harsh, but fair” Draghi's proposals include a massive increase in industrial investment and innovation, which he argues are essential for Europe to remain competitive with the United States and China.
Lagarde He praised the report and said the proposed reforms were European Central BankHe spoke about the ability of central banks to achieve their monetary policy objectives. He noted that productivity gains, deepening capital markets, and increased financing for innovation are key outcomes that could benefit central banks. Lagarde He said he expected European authorities to take the report seriously and pursue the recommended structural reforms.
