HSBC Predicts European Central Bank to Cut Interest Rates Faster Amid Eurozone Economic Slowdown
In a surprising turn of events, eurozone activity indicators have taken a hit, leading to concerns over inflation easing. HSBC analysts now predict that the European Central Bank will slash interest rates at a faster pace than previously anticipated to bolster the region's economy.
Recent data reveals a sharp and unexpected contraction in eurozone business activity, with both Germany and France experiencing downturns. This has prompted HSBC's preliminary HCOB index to drop to 48.9 this month, below the growth threshold of 50 for the first time since February.
"The risks of a sharper slowdown in activity have clearly grown," stated HSBC analysts in a note dated Sept. 25. "A risk-based approach to setting monetary policy may favor earlier and swifter easing, with the potential for multiple rate cuts while maintaining a restrictive policy stance."
Factors such as disinflationary trends in commodities and the euro, along with weak performance in key eurozone economies, support the case for immediate easing measures. The ECB's September forecast predicts inflation to remain below target in 2026, raising concerns of a significant undershoot.
HSBC now anticipates the ECB to implement 25 basis point rate cuts at each meeting from October until April 2025, aiming for a key deposit rate of 2.25%. This is a shift from previous expectations of rate cuts every other meeting until September 2025.
Analysis:
The prediction by HSBC of faster interest rate cuts by the European Central Bank signifies a deteriorating economic outlook in the eurozone. This could lead to lower borrowing costs for businesses and consumers, potentially stimulating spending and investment. However, it also reflects concerns over weakening economic performance and the need for proactive monetary policy measures to support growth. Individuals and businesses should monitor these developments closely as they may impact borrowing rates, investment decisions, and overall financial conditions in the eurozone.