Economists expect more successive cuts from the European Central Bank amid the specter of very low inflation
Economists expected the European Central Bank to continue its successive securities interest rate cuts over the past week, with some raising the possibility that the central bank could soon face the risk of very low inflation.
Jack Allen Reynolds, deputy chief eurozone economist at Capital Economics, expects the interest rate to be cut by 25 basis points on Thursday and at each upcoming meeting until the deposit rate reaches 2.5%, from the current 3.5%.
The market consensus is for a 2% rate by the end of 2025, according to Dutch bank Rabobank, with the market pricing it at around 1.88%.
Economists at Goldman Sachs expect a faster path for interest rate cuts, with successive cuts that would take the deposit facility to 2% by June 2025. Meanwhile, Bank of America Global Research sees a continuation from there to a 1.5% rate by the end of the year. .
This aggressive path to monetary easing will come as some argue that the ECB now faces the additional challenge of ensuring inflation does not fall to the sustained lows seen before the pandemic, which led it to keep interest rates in negative territory for years.
French Central Bank President François Villeroy de Galhau told Italian newspaper La Repubblica earlier this month that missing the 2% inflation target is a risk the ECB is monitoring.
-Jenny Reed
The euro is falling against the US dollar
the euro Gold traded 0.1% lower at $1.0852 on Thursday morning, as investors eyed the next monetary policy decision from the European Central Bank.
The European Central Bank is widely expected to cut interest rates by a quarter point for a second successive meeting later in the day.
The exchange rate of the euro against the dollar since the beginning of the year.
The professor says the ECB will commit to gradual interest rate cuts given the geopolitical risks
European Union flags flutter in front of the European Central Bank headquarters in Frankfurt, Germany on July 18, 2024.
Jana Raudenbush | Reuters
Mojmir Mrak, a professor at the University of Ljubljana's School of Economics and Business, told CNBC's “Squawk Box Europe” on Thursday that the ECB will commit to gradual interest rate cuts over the first half of next year, given geopolitical risks.
“If you compare what happened immediately after the last meeting and today, the expectation was that (interest rates) would fall more slowly,” Marak said.
“Now I think we are on the path where interest rates will fall, that is my opinion. I think the central bank will do it gradually because we must not forget that we live in a very unstable world. If something bigger happens in the Middle East world with oil prices, it could We will have change immediately.”
Mrak noted that the gradual pace could see cuts of 25 basis points in October and December, with more small cuts taking place throughout the first half of next year.
-Jenny Reed
European stocks were mixed, and the euro was steady ahead of the interest rate announcement
European STOXX 600 Index
European stock markets were mixed at the open on Thursday, with the main index down Stokes 600 The index gained 0.13% at 8:12 a.m. in London. The banking sector was the best performing sector, rising by 0.75%.
Germany Dax And France CAC 40 Both were up about 0.5%, ahead of the UK FTSE 100 indexwhich remained near the flat line.
Euro moves were weak, with the currency falling 0.09% against the US dollar and rising slightly against the British pound.
-Jenny Reed
Goldman economist says lack of guidance from the European Central Bank supports the euro against the US dollar
The euro is being protected from sharp losses against the US dollar – despite strong economic growth in the US – partly because the European Central Bank is not providing strong guidance on its future path, Goldman Sachs's chief European economist, Gary Stein, told the network. CNBC. “Squawk Box Europe” on Thursday.
“The ECB is cutting interest rates, but it's cutting them in a very data-driven way, without giving you a lot of guidance on where to go next. We think that will also be very much the message today,” Stehn said. .
“So we will have a 25 basis point cut, and we think they will say we are doing that in response to the weaker data.”
“I think (ECB President Lagarde) will say: Look, if inflation continues to fall we can cut more, but the extent and the pace and all that will depend on the data. So I think now the markets understand this message well.”
The euro has been volatile against the dollar throughout this year, starting at $1.1044 and falling to $1.0853 as of Thursday.
Steen also told CNBC that caution about the outlook for the euro zone economy is justified.
“The data coming in has been weak, and we clearly have different challenges, from trade to finance to the manufacturing sector. We lowered our forecasts several times over the summer. We have 1% growth over the next year, which is lower than what the ECB has.”
“Now, that means we still think we're growing. So we're not saying we're heading into a recession, and we're not saying we're in a complete recession.”
-Jenny Reed
Markets expect two additional interest rate cuts by the end of the year
Financial markets have priced in two more interest rate cuts of 25 basis points from the European Central Bank this year, with these expected to take place on Thursday and at the central bank's next monetary policy meeting in December.
This would raise the deposit facility – the ECB's key interest rate – from 4% in June to 3% by the end of 2024.
The European Central Bank was one of the first major central banks to lower interest rates when it cut them by a quarter of a percentage point in June. The US Federal Reserve did not join the easing path until September, when it cut its key interest rate by half a percentage point.
-Jenny Reed
