2024-10-02 04:53:25
The arsenal of the “hawks” at the European Central Bank is now running out of “ammunition”: For the first time in three and a half years, inflation in the euro zone is below 2%.
Consumer prices rose in September by 1.8%, compared to the same month last year, according to Eurostat. Well, the arguments of those who insist on a restrictive monetary policy are starting to fall apart.
This means that it is now a given that on October 18, the ECB Board will proceed to another one reduction of key interest rates, probably by 25 basis points, while a corresponding cut in December is also considered a given. “OR falling inflation in major eurozone economies in September, along with evidence that price pressures are easing and activity is slowing, raised the possibility of another ECB inflation cut in October,” Capital Economics said in a note to clients.
Furthermore, Christine Lagarde, the head of the European Central Bank, President of the ECB, said it clearly in a hearing at the Economic and Monetary Affairs Committee of the European Parliament, in Brussels: “The latest developments reinforce our belief that inflation will return to the target level in time .We will take this into account at our next monetary policy meeting in October.”
Headwinds to growth
In September, the ECB cut interest rates for a second time, appearing determined to shore up anemic growth in the eurozone. Lagarde also acknowledged that growth rates are poor. “The subdued levels of some survey indicators suggest that the recovery is facing headwinds,” he told a regular hearing of the Economic and Monetary Affairs Committee.
The deposit rate, which sets the trend for financial markets and at which banks park short-term excess funds at the ECB, fell by a quarter of a percentage point to 3.50%.
After all, the cut in interest rates followed the decline in inflation in eurozone, mainly due to the evolution of energy prices. They were down 6% year-on-year. On the other hand, the prices of services increased significantly by 4%. Food, alcohol and tobacco cost 2.4% more than in September 2023.
“With inflation falling faster than expected and big cuts in the US, we believe there will be a majority in the ECB Governing Council to agree to a rate cut in October,” says Alexander Valentine, senior economist at Oxford Economics.
The ECB has no other way
“The ECB is a central bank with a single mandate, focused precisely on tackling inflation and supporting the euro,” say market players at Nautemporiki. “But the bad economic outlook for the eurozone justify further easing of monetary policy. After all, most strategic analysts believe that the ECB would be following the wrong policy by putting too much emphasis today on inflation at the expense of growth,” the same sources add. The ECB has no other way to go…