LONDON, Sept 12 (Askume) – The European Central Bank cut interest rates again on Thursday but revealed little about its next steps as inflation remains subdued and economic growth slows, while investors brace for further easing policy.
The European Central Bank cut its deposit rate by 25 basis points to 3.50%, as expected, following a similar rate cut in June, as inflation is now close to the 2% target and the domestic economy has avoided recession.
At the same time, the refinancing rate was reduced by 60 basis points to 3.65% as part of a long-pending technical adjustment.
After the interest rate decision, the euro briefly hit intraday highs and eventually settled near $1.1028. Euro zone government bond yields were little changed and European stocks (.STOXX) rose.
The euro zone banks index (.SX7E) rose 1.8%.
Money markets expect it to ease by a further 40 basis points by the end of the year, and a 25 basis point increase in October to reach 42%.
notes:
Hussain Mehdi, director of investment strategy at HSBC Asset Management UK:
“The lack of prospects for a rate cut at this meeting, especially given the sharp slowdown in wage growth and the sharp revaluation of US interest rate expectations over the summer, weakens the hawks’ influence on us. For now, we see a global economic outlook for further inflation and central bank easing. This is a good environment for risk assets… But the outlook remains highly uncertain, so the risk of a hard landing in the market remains high.”
Yael Selfin, chief economist at KPMG in the UK:
“Looking ahead, uncertainty remains about the path of interest rates, and despite the consensus among the Governing Council that policy restrictions should be eased, we expect another cut in the deposit rate in December this year. If the outlook weakens further, it will strengthen the case for more dovish policymakers to increase the pace of interest rate cuts in 2025, leading to a final interest rate of around 2.25%.”
Lindsay James, investment strategist, Quilter Investors, London:
“Today’s news will certainly bring some relief to consumers and businesses, which could help the continent move towards a better economic recovery, but it remains to be seen whether the ECB can cut interest rates again this year.”
“The ECB has much less room for manoeuvre than other central banks, so while further rate cuts in October cannot be completely ruled out, the ECB will, as always, be very dependent on data between now and then”
“Ensuring that inflation continues to move in the right direction, and in particular tightening controls on core inflation, will be high on its agenda.”
Neil Birrell, Chief Information Officer, Premier Myton Investors, UK:
“It has become clear that the ECB will cut interest rates. They will focus on growth prospects rather than inflation. It depends on whether they will cut interest rates in the remaining meetings this year and next year. How difficult is the road ahead?”
“The eurozone economy, like most other regions, needs some stimulus and this is a step in that direction. Economic data in the coming weeks will determine the timing of the next policy steps.”
Karsten Brzeski, global head of macro at ING in Frankfurt:
“Looking ahead, we expect the ECB to eventually accelerate the pace of rate cuts. Not this year, but next year. Why not this year? Because for now, German wage negotiations and rising selling price expectations are still keeping inflation in check. Given the ECB’s record of predicting rising inflation is weak, and the ECB wants absolute certainty before making more aggressive rate cuts.”
Sylvain Broyer, chief Europe, Middle East and Africa economist, S&P Global Ratings, London:
“As expected, the ECB implemented a 25 basis point rate cut without any additional policy guidance. With wage growth far outpacing productivity and service sector inflation rising again, the Governing Council has no reason to accelerate the pace of rate cuts or make any reductions. Policy decisions.” Promise.
“The upcoming 35 basis point cut in the repo rate is unlikely to have any significant impact, and while it may act as a ceiling on money market rates in the long term, banks currently have little incentive to use leverage because of their liquidity needs. This is entirely up to the ECB.”
Marshal Alexandrovich, economist at Saltmarsh Economics in London:
“As expected, the ECB cut interest rates by 25 basis points, more or less reiterating its June statement ‘not pre-committing to any particular policy path’.”
“The new forecasts point to GDP growth being slightly weaker and underlying inflation being slightly higher.”
“Overall, we think the ECB is laying the groundwork for further easing in the fourth quarter.”
