Presented by the European Central Bank The interest rate is expected to be reduced by a quarter of a point This week – alongside the announcement – several indicators emerged that interest rates will move quickly lower early next year.
European Central Bank President Christine Lagarde indicated during her press conference on Thursday that policymakers meeting in Frankfurt do not believe the battle against inflation is completely over. morewith service inflation still a concern.
However, overall, this was the most pessimistic meeting of the current session, not least because the ECB's new macroeconomic forecasts predicted lower inflation rates and economic growth this year and next.
Economists also He jumped on removing the ECB's message that the central bank should “keep interest rates sufficiently tight for as long as necessary.” Lagarde stressed that there were downside risks to the euro zone's already weak growth outlook, but said that inflation image Significantly improved and includes upside risks. She also said that a larger half-point cut was discussed, and that board members voted unanimously in favor of lowering interest rates.
Meanwhile, new ECB staff forecasts put average headline inflation just above the target at 2.1%. In 2025with Stronger Prices are expected to rise at the beginning of the year, indicating that they may fall below the target level later in the year.
It was a dovish shift Confirm On Friday when Austrian Central Bank President Robert Holzmann – widely viewed as the ECB's hawk and sole… Board of Directors Member to vote for price suspension instead of a Cut in June – He told reporters he wouldn't be there risk If interest rates are lowered next year Economy It is progressing as expected, according to Reuters.
Where is neutral?
Holzman also said markets have a “similar assessment to the central bank's assessment” that interest rates will fall toward a lower level A neutral level – when monetary policy is balanced between promoting and restricting growth – is about 2% next year.
The European Central Bank cut its deposit facilities – its key interest rate – to 3% on Thursday.
What constitutes The neutral rate was A Main point of discussion In recent months, Lagarde said on Thursday that although it was not discussed at the December meeting, Staff It ranged between 1.75% and 2.5%.
Another question for market participants is whether the ECB It will take Prices below This is the neutral level If inflation declines further and growth expectations deteriorate, as has already happened I posed Written by François Villeroy de Galhau, Governor of the Central Bank of France.
This week's messages broadly confirmed current market bets on the European Central Bank's plan to cut interest rates for 2025.
According to LSEG data, financial markets We are continuing to price In the fall The European Central Bank's key interest rate to 1.75% by September next year, with retention beyond that.
But some analysts said there was now support for lowering interest rates beyond that.
The European Central Bank is heading toward sub-neutral interest rates in 2025, given the trend toward weak growth and below-target inflation, economists at Deutsche Bank said in a note on Friday.
They added that their baseline forecast was for a rate of 1.5% at the end of 2025 with cuts of a quarter of a percentage point, but there was still a step of half a percentage point. maybe.
Dean Turner, chief euro zone economist and UK economist at UBS Global Wealth Management, parked his 2% forecast in June, but said the risks now “are towards the ECB having to do more, not less, to support the economy in 2017.” 2019″. 2025” – likely to mean further cuts later in the year Instead Of the bigger moves earlier.
However, Kamil Kovar, chief economist at Moody's Analytics, said in a note that stubborn core inflation will continue to motivate the ECB to be cautious next year.
“We think that after March, the battle over how much to cut interest rates will start in earnest,” Kovar said. “We have no cut in April and the last cut in June, which leaves interest rates at 2.25%.”
