The ECB is expected to cut rates by 0.25 points.
Frankfurt (Germany) (EFE) – The European Central Bank (ECB) is expected to cut interest rates by a quarter point, its second consecutive cut, given the development of disinflationary processes and the weak economic situation. activity in the eurozone.
The ECB’s Governing Council, which meets this Wednesday and Thursday in the Slovenian capital Ljubljana, will set the deposit rate, which offsets excess overnight reserves and is its base rate, at 3.25%, according to analysts and the market.
For its part, the core operations fund (OPF) – weekly credit injections – and the credit line – the one that lends to banks overnight – will fall to 3.4% and 3.65% respectively. The organization will hold its second in a row. The rate cut, the third since the beginning of the year, will leave behind the quarterly rate of decline that it has maintained so far, following cuts in June and September.
The disinflationary process continues in the eurozone
This will come in the context of a continued deflationary process after the eurozone inflation rate fell for the third month in a row in September to 1.8% year on year, four tenths less than in August and its highest level. . lowest level since April 2021.
However, eurozone GDP grew by 0.2% in the second quarter of the year, one-tenth less than in the first three months of 2024; while the government in Germany – the group’s main economy – last week revised its forecast for 2024 to a contraction of 0.2%, rather than growth of 0.3% as in April.
In this context, analysts assume that the ECB will cut interest rates and that these cuts will be repeated at its next meetings.
“Although the ECB had previously targeted the next rate cut in December, weaker macroeconomic forecasts have likely bolstered the Governing Council’s confidence enough to deviate from a quarterly rate cut,” said PIMCO economist Constantin Veit.
Deutsche Bank said the contraction would be “significant” as it is the first in a back-to-back cycle and signals a “turn toward a faster relaxation cycle.”
For their part, AXA IM and Abrdn agree to emphasize that the fall will be a response to weak economic growth in the eurozone and lower-than-expected inflation.
A weakness that, moreover, the government council itself had already mentioned in the minutes of its last meeting, where it was stated that with inflation approaching the target, real economic activity should be more important for calibrating policy. . monetary.
Close the year at 3%
Along with this cut, Ibercaja Gestión head of fixed income and fund manager Cristina Gavin notes that the ECB will also make another cut in December, leaving the deposit rate at 3% at the end of 2024.
In this regard, Bank of America’s chief European economist Ruben Segura-Cajuela believes the data “will continue to push the ECB to cut rates at every meeting until June 2025,” although they are not yet expected to signal such a decision.
Additionally, Segura-Cayuela points to debates within the institution itself, stating that it would be surprising if the decision were made unanimously, but rather that the debate would begin between “doves” and “hawks”, although in the end “there must be the widest.”
In any case, analysts believe that the message, although it could be somewhat softer, will not depart from the data-driven and meeting-by-meeting approach of monetary policy.
The ECB cut interest rates by 0.25 points twice in 2024 (June and September), following a cycle of 10 consecutive hikes between July 2022 and September 2023 due to escalating inflation.