In a significant shift in monetary policy, the European Central Bank (ECB) is poised to reduce interest rates once more on Thursday.
This anticipated decision comes in response to a recent report indicating that inflation across the eurozone has fallen to its lowest level in over three years, alongside a notable slowdown in economic growth.
During a meeting in Ljubljana, Slovenia—marking a departure from its typical venue in Frankfurt—the ECB’s rate-setting council is expected to adjust the benchmark rate from 3.5% to 3.25%.
If realized, this will mark the third consecutive rate cut since June.
Inflation trends have surprised analysts, declining more sharply than anticipated.
In September, inflation dropped to 1.8%, dipping below the ECB’s target of 2% for the first time since 2020.
Given the mounting evidence of stagnation in the eurozone, which reported a meager 0.3% growth in the second quarter, many experts believe that ECB President Christine Lagarde will be inclined to further rate reductions, potentially in December.
Holger Schmieding, chief economist at Berenberg Bank, noted:
The trends in the real economy and inflation support the case for lower rates.
The global decline in inflation can largely be attributed to central banks raising borrowing costs sharply from near-zero levels during the Covid-19 pandemic.
This spike in rates was initially a response to rising prices caused by supply chain disruptions, further exacerbated by Russia’s invasion of Ukraine, which significantly increased energy prices.
Established in 1999 alongside the launch of the euro, the ECB began its rate hike cycle in the summer of 2021, eventually reaching a historic high of 4% in September 2023.
This strategy aimed to combat inflation by making borrowing costlier for both consumers and businesses.
However, these measures have also had repercussions, contributing to a slowdown in economic growth across the region.
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