There’s a lot of chatter right now about the European Central Bank (ECB) and whether they’re planning to slash interest rates next month. September is the month everyone’s watching.
Reasons for Possible Rate Cuts
Analysts are almost unanimous—over 80% of them—expecting the ECB to pull the trigger on a rate cut next month along with the Federal Reserve. They’re also betting on another one in December. The reason? Inflation isn’t backing down, and it’s still sitting above the ECB’s target of 2%. ECB President Christine Lagarde has said that any rate cuts will depend on the data, especially what’s happening with inflation.
Expert Opinions
But with things as they are, it’s hard to see them holding back much longer. Right now, the ECB has its key interest rates set at 4.25% for main refinancing operations and 3.75% for the deposit facility.
ECB's Near Future Plans
Enter Martins Kazaks, a member of the ECB’s Governing Council and the head of Latvia’s central bank. He’s said straight up that he’s ready to discuss another rate cut in September. He said: "Given the data we have at the moment, I would be very much open for a discussion of yet another rate cut in September." Kazaks added that monetary policy has done a good job to push inflation down, to create a basis for growth, and to lessen uncertainty. However, he pointed out that there has been a lack of structural improvements, leading to relatively timid growth. In the July meeting, the ECB decided to stay open-minded, acknowledging the ongoing risks to the inflation outlook. Since then, things haven’t improved much. Recent data showed that gains in negotiated wages have moderated in the second quarter, which could mean that inflation will finally return to the ECB’s 2% target by 2025. Kazaks isn't completely pessimistic. He believes that even with a few more rate cuts, monetary policy will remain restrictive enough to keep inflation in check.
Thus, the ECB continues to closely monitor the inflation situation and prepares for possible interest rate cuts in September and December this year.
Comments