Interest rate cuts: new risks facing the ECB

Spanish financial advisory firm Nextep Finance claims that European Central Bank The ECB should pay more attention to the disinflationary pressures affecting the eurozone following its recent 25 basis point interest rate cut.

Victor Alvargonzalez, director of strategy at independent financial consultancy Nextep Finance, argues that “inflation in Europe is already below the ECB’s target, while “China is in a deflationary situation that is affecting the rest of the world.”. In addition, the recession in Germany and economic stagnation in other EU countries pose, in his opinion, the main risks for the organization headed by Christine Lagarde.

The expert notes that a significant recovery in overall inflation is not expected, and believes that core inflation will eventually slide down. In his opinion, the ECB should pay more attention to the fact that risks as for growth and inflation point down.

Regarding fears possible euro devaluationAlvargonzalez warns that worrying about this would be a mistake, as forecasts point to a fall in imports and oil prices. According to him, disinflationary forces will offset any strengthening of the dollar.

Ahead of the ECB’s next meeting in December, Alvargonzalez expects another rate cut of 25 basis points. in interest rates. However, he urges us to proceed with caution because the economic situation in Europe is different from that in the US, where growth is much more dynamic.

Falling oil prices

Regarding energy prices, Alvargonzalez notes that oil prices are falling due to a significant increase in supply. This is because the United States is producing much more crude oil than in the past, and Russia is selling all the oil it can. While supply continues to rise, demand has weakened, especially from China, which has reduced crude oil purchases.

“Unless there is a major conflict in the Middle East, “I don’t see an aggressive recovery in oil prices.”– concludes Alvargonzalez.