ECB Set to Cut Interest Rates Again, Investors on Edge for Further Easing
The European Central Bank is almost certain to cut interest rates again on Thursday, with inflation risks still simmering despite a stuttering euro zone economy. Investors will be closely watching for clues about further easing in the ECB's statements.
ECB President Christine Lagarde is expected to maintain the bank's recent narrative that decisions are made meeting by meeting, based on incoming data. However, all meetings are considered "live", leaving the door open for a potential cut in October.
The debate among policymakers is centered on the speed at which borrowing costs should be lowered. Dovish policymakers argue that recession risks are rising and that inflation is close to the 2% target, while inflation-wary hawks believe that underlying price pressures could lead to resurgent inflation.
New economic forecasts are anticipated to show slightly lower growth this year, with inflation on a similar path as in June. The key divide among policymakers is how quickly the ECB should move towards further easing.
Investors are divided on the timing of the next move, with another cut by December fully priced in but the chance of an interim move in October fluctuating between 40% and 50%. Lagarde's main task will be to keep all options on the table without raising expectations for October.
With Thursday's anticipated rate cut, the ECB's deposit rate will fall by 25 basis points to 3.5%. The refinancing rate is expected to drop by a larger 60 basis points in a technical adjustment. This adjustment aims to narrow the gap between the two interest rates, eventually rekindling lending between banks.
In conclusion, the ECB's decision on interest rates will have a significant impact on the euro zone economy and financial markets. Investors should closely monitor the ECB's statements for clues about future easing and be prepared for potential changes in borrowing costs. Stay informed and make informed decisions to protect your finances in the ever-changing economic landscape.