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The European Central Bank (ECB) slashed its deposit rate by a quarter-point for the second time this year, a clear reaction to weak economic growth and inflation that’s inching closer to the 2% target. The decision was widely expected, and yet, financial markets barely reacted. It’s as if they shrugged and said, “Is that all you’ve got?” The ECB has dialed down its 2024 growth forecast to 0.8%, slightly below the previous prediction of 0.9%. Domestic demand is expected to drag down growth in the coming quarters. The central bank’s Governing Council was as vague as ever, repeating their tired old line about making decisions based on data and going meeting by meeting.  So no one really knows if another cut is coming in October or later in the year. Economists are split. They think the ECB might hit the pause button when they meet again on October 17, just like they did back in July.  Christine Lagarde, the President of the European Central Bank But others are eyeing December 12 for the next potential quarter-point cut. According to LSEG data, there’s a 70% chance the ECB will leave rates unchanged in October, with only a 30% probability of another cut. ECB President Christine Lagarde isn’t easing folks’ concerns. She made it crystal clear that they aren’t “pre-committing” to anything, leaving room for plenty of guesswork. Carsten Brzeski from ING Research pointed out that inflation is still a bit sticky, partly thanks to wage negotiations in Germany. As long as that’s the case, the ECB will likely hold off on more aggressive rate reductions. Brzeski doesn’t think we’ll see faster cuts until next year, and he’s not wrong to point out that the ECB’s record on predicting inflation isn’t exactly stellar. But here’s the catch. With the Eurozone’s growth outlook…

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Filed under: News - @ September 12, 2024 6:25 pm