Eurozone September Consumer Price Inflation Rate 1.8%
About 90% Chance of Interest Rate Cut in October
On the 1st (local time), Martins Kazaks, Governor of the Bank of Latvia, and Olli Rehn, Governor of the Bank of Finland, revealed that the European Central Bank (ECB) is leaning toward a rate cut ahead of the October monetary policy meeting scheduled for the 17th.
Kazaks, classified as a hawk (preferring monetary tightening) within the ECB, stated, "Recent data clearly points toward a rate cut," adding, "Risks to the economy have become more pronounced, especially with sticky service inflation, and the balance is tipping toward growth slowdown risks."
On the same day, Governor Rehn said in a speech, "Recent data has provided further confirmation that inflation is slowing," and "At least in my view, this means there is more justification for a rate cut at the October meeting." Rehn is classified as a moderate dove. He also added, "The recent weakening of the Eurozone growth outlook also tilts the scales in the same direction (rate cut)."
The preliminary consumer price inflation rate for the Eurozone (20 countries using the euro) in September, released that day, was 1.8%, falling below the ECB’s target (2%) for the first time in three years and five months. This has strengthened expectations that the ECB will implement an additional rate cut at this month’s monetary policy meeting. The ECB cut its benchmark interest rates twice, in June and September, ahead of the United States.
ECB President Christine Lagarde also emphasized the likelihood of a rate cut in October during her remarks the previous day. Speaking at the European Parliament, she said, "Disinflation (slowing inflation) has accelerated over the past two months," adding, "Inflation may temporarily rise in the fourth quarter, but recent developments reinforce confidence that inflation will reach the target in a timely manner. We will consider this at the next monetary policy meeting in October."
According to Bloomberg News, the market currently sees about a 90% chance of a rate cut at this ECB meeting.
However, Governor Kazaks warned against aggressive monetary easing, saying, "The direction of rates will continue downward after October," but geopolitical risks and factors such as the U.S. presidential election warrant caution. He stated, "I want to caution against getting ahead of the economic situation."
Kazaks also judged that it is premature to declare victory over inflation. He said, "It is too early to say inflation is over," adding, "Rates still need to remain somewhat restrictive, and even if there are additional cuts, they will be maintained at that level." Among his concerns was the possibility of a sudden downturn in the labor market.
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