-The European Central Bank on Thursday cut interest rates for the third time this year, mindful of slower economic growth, softening in parts of an otherwise solid labor market and easing consumer price pressures.
The ECB is tacitly acknowledging that inflation, currently below 2%, could settle around the 2% target sooner than previously thought, as predicted by a Reuters survey of analysts. The interest rate was lowered by 25 basis points to 3.25%.
However, this is despite the market expecting similar rate cuts at each of the next three meetings and expecting policy rates to be reduced from growth-suppressing levels to at least a neutral setting by the end of next year. , the central bank gave no new clues about its next steps.
“Further information on inflation indicates that the process of deflation is well underway,” the ECB said in a statement. “The outlook for inflation is also influenced by downward expectations for recent indicators of economic activity.”
A rate cut had been widely expected after policymakers argued for faster policy easing heading into the meeting following a series of weak growth indicators and positive inflation data.
Weak sentiment indicators, weak consumer spending and a prolonged industrial recession suggest little growth in the eurozone, with inflation falling to a three-year low of 1.7% last month, putting pressure on the downside. There will be pressure. “Domestic inflation remains at a high level as wages continue to rise at a high pace. At the same time, labor cost pressures will continue to gradually ease as profits partially cushion the impact on inflation,” the ECB said. Dew,” he added. However, policy hawks are still likely to oppose rapid interest rate cuts, given the possibility that inflation will accelerate in the coming months.
The labor market remains tight, unions continue to demand significant wage increases, energy costs are volatile, and service prices remain rapidly rising, all of which means that domestic inflation remains relatively low for some time to come. This suggests that prices may remain high.
However, dovish factions argue that growth is currently so weak that unless the ECB acts quickly to shore up the region, inflation will actually be below target, and that the ECB will be forced to take excessive steps from combating rapid price rises. They argue that the economy will be forced to shift to low inflation.
With the debate unlikely to be resolved on Thursday, ECB President Christine Lagarde made no promises at a 1245 GMT press conference and is likely to offer few clues about future policy moves. (Reporting by Balazs Koranyi; Editing by Hugh Lawson)
