The European Central Bank (ECB) is set to cut interest rates by 25 basis points at its upcoming meeting on October 17 and again in December, as indicated by the latest Reuters poll of economists.
With the eurozone economy struggling and inflation declining rapidly, 90% of surveyed economists believe that such measures would bolster economic activity.
Last week, President of the European Central Bank Christine Lagarde reaffirmed the likelihood of a rate cut, stating that recent economic data supported confidence in a return to the 2% inflation target.
Inflation dropped to 1.8% in September, marking a significant shift from just a month prior when only 12% of economists anticipated such a reduction.
The ECB could reduce rates to 3.25% at its October meeting, down from the current 3.50%, and further to 3.00% in December, according to the poll. Economists point out that such a policy would align with current market expectations, which have already accounted for imminent monetary easing.
However, uncertainties loom ahead. Core inflation is anticipated to remain at 2.7% next quarter, and robust wage growth presents risks to the decision to cut rates. Experts caution that swift rate reductions could encounter opposition from more hawkish members of the ECB Governing Council.
The eurozone economy is projected to grow by 0.7% this year and 1.2% in 2025, suggesting that ECB support may be crucial to sustain growth amid fluctuations in Germany, where the economy reported zero growth in the third quarter following a contraction in the second quarter.
The analysis indicates that if the ECB proceeds with its plan to cut rates, it could yield both positive and negative outcomes. On one hand, rate reductions could boost consumer and investment demand, potentially supporting economic growth. Conversely, a significant rate cut might signal deeper economic issues, such as slowing growth or declining consumer sentiment.
The ECB’s forthcoming decisions will thus be critical not only for the short-term outlook of the eurozone economy but also for its long-term strategy aimed at achieving sustainable growth.
Should a rate cut take place, monitoring market reactions will be essential to assess its impact on inflation and the overall economic environment. The real challenges for the ECB lie not only in cushioning current economic fluctuations but also in maintaining long-term stability, which necessitates a careful balance between fostering growth and controlling inflation.
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