The European Central Bank (ECB) is set to convene its Governing Council meeting in Ljubljana, Slovenia today, with strong indications pointing towards a second consecutive 25 basis point reduction in key interest rates.
ECB President Christine Lagarde and Vice-President Luis de Guindos are scheduled to announce the decisions at 03:45 pm.
Investment bank Berenberg anticipates clear-cut decisions, with its chief economist Holger Schmieding stating, “Like most observers, we expect the ECB to lower interest rates by 25 basis points on Thursday”.
Schmieding also predicts a fourth rate cut in December, potentially lowering the deposit facility rate to 3%.
Economic trends support the case for rate cuts. In September, the ECB reduced its Eurozone growth forecasts for 2024-2026 by 0.1 percentage points.
The Purchasing Managers’ Index (PMI) fell below 50 in August, indicating subdued economic activity. Additionally, the European Commission’s economic sentiment indicator dropped to 96.2 points in September.
Inflation has also eased, with the annual rate falling to 1.8% in September from 2.2% in August, the lowest level since April 2021.
Core inflation, while still relatively high, decreased to 2.7% in September, maintaining a downward trend.
Several ECB Governing Council members have advocated for another rate cut this month.
Christodoulos Patsalides, Governor of the Central Bank of Cyprus, recently suggested there might be room for interest rate reductions, citing sluggish Eurozone economic growth and the PMI indicator.
However, he emphasised the need to discuss all new data, including developments in the Middle East.
Following changes to its monetary policy framework, the ECB now considers the deposit facility rate as its primary policy guidance tool.
The main refinancing operations rate and the marginal lending facility rate are set to maintain fixed spreads of 15 and 25 basis points, respectively, above the deposit rate.
(information from CNA)
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