Second Interest Rate Cut Expected on the 12th
Bloomberg "Will Lower by Another 25bp in December"
The European Central Bank (ECB) is expected to implement a second interest rate cut ahead of its monetary policy meeting on the 12th (local time), Bloomberg reported on the 8th. The market is focusing on the possibility of additional rate cuts within the year.
Bloomberg stated, "The ECB is highly likely to lower rates on the 12th, ahead of the U.S. Federal Reserve's (Fed) moves next week," adding, "The global monetary policy cycle is moving toward simultaneous easing." It also mentioned the possibility of one more rate cut within the year.
The market consensus is that the ECB will cut the benchmark interest rate by 0.25 percentage points from 4.25% to 4% at this meeting. The ECB previously lowered rates once in June from 4.50% to 4.25% and then held them steady.
Bloomberg analyzed that the slowdown in wage growth in the second quarter supports the rate cut. The negotiated wage increase rate in the Eurozone (20 countries using the euro) for the second quarter was 3.6% year-on-year, sharply down from 4.7% in the first quarter.
Inflation rates have also eased. Eurostat, the statistical office of the European Union (EU), announced on the 30th of last month that the preliminary consumer price inflation rate for August rose by 2.2% compared to a year earlier. This is lower than July's 2.6%, marking the lowest level in about three years since mid-2021. Core inflation, which excludes volatile items such as food and energy, was 2.8%, easing from 2.9% recorded between May and July.
According to Eurostat, the combined gross domestic product (GDP) of the 20 Eurozone member countries grew by 0.2% in the second quarter compared to the first quarter. This is slightly lower than the previous estimate of 0.3%.
These statistics indicate a reduced likelihood of inflation intensifying again in the Eurozone. Bloomberg noted, "Officials are likely to feel more comfortable changing rates at the upcoming meeting."
Additionally, the expectation that the Fed will implement its first rate cut on the 18th adds weight to the possibility of a rate cut in the Eurozone. Narrowing the rate cut gap between the U.S. and Europe increases the room for Europe to lower rates.
The market is paying close attention to whether the rate cut cycle will begin at the ECB meeting on the 12th.
Bloomberg views it as more likely that an additional rate cut will occur in December rather than at the next meeting in October. David Powell, Chief Economist at Bloomberg Economics, said, "We expect the ECB to cut another 25 basis points (1bp = 0.01 percentage points) in December," adding, "However, due to rising wage growth and sticky service inflation, they will not make any pre-commitments to rate cuts."
Peter van den Haute of ING Bank stated, "With weakening growth prospects, I believe the ECB will accelerate the pace of easing."
Piero Cipollone, an ECB monetary policy committee member, said in an interview with France's Le Monde on the 4th, "Investment and growth are desperately needed in Europe, so we must ensure inflation converges to the target without unnecessarily suppressing the economy."
According to a major foreign media survey conducted on the 5th targeting economists, 64 out of 77 respondents predicted that the ECB would cut the deposit rate by 25 basis points each in September and December. If this happens, the Eurozone deposit rate, currently at 3.75%, will fall to 3.25% by the end of the year. Luca Mezzomo, Head of Macroeconomic Analysis at Intesa Sanpaolo, said, "The likelihood of a rate cut on the 12th has increased due to recent weeks of wage declines and sluggish economic activity."
However, concerns remain. Joachim Nagel, President of the German Central Bank, warned on the 4th not to prematurely celebrate the easing of inflation, stating, "Even after rate cuts, ECB monetary policy remains tight."
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