'Ghost' of low inflation threatens Eurozone: ECB faces decision to cut interest rates

DNVN - Weak growth and downward pressure on prices may force the European Central Bank (ECB) to consider a series of prolonged interest rate cuts. Inflation in the Eurozone fell to 1.8% in September, marking the first time in more than three years that the index has fallen below the ECB's 2% target.

The development is a notable reversal from recent record high inflation, when the ECB was forced to raise interest rates to a record 4% in September 2023 to control prices.

ECB policymakers are scheduled to meet on October 17 and are likely to cut interest rates. Many investors expect the ECB to cut rates by 25 basis points to 3.25%.

Economists say the October rate cut could set off a series of faster and more aggressive rate cuts. Financial markets currently expect the ECB to cut rates to 1.7% in the second half of 2025.

Morgan Stanley economist Jens Eisenschmidt, who served at the ECB until 2022, said preventing a return to sub-2% inflation would be one of the biggest challenges for the ECB. He predicted that the ECB’s interest rate could be halved to 1.75% by December 2025, but he did not rule out the possibility that this would not be the end of the easing cycle.

In its September forecast, the ECB expected annual inflation to reach its 2% target by the fourth quarter of 2025. However, ECB officials have expressed concern that this forecast may be too optimistic, especially after the September inflation figures were released.

Sebastian Dullien, research director at the Macropolitik Institute in Düsseldorf, Germany, warned that weak growth and falling inflation suggest the ECB is too slow to adjust interest rates. Dullien said the ECB has raised interest rates too much, hurting an economy already weighed down by low productivity, weak investment and an aging population. He stressed that current monetary policy may be exacerbating structural problems.

The ECB has cut interest rates twice this year from record highs, and markets expect the bank to accelerate its monetary easing with cuts in October and December. This comes as inflationary pressures are easing faster than policymakers expect.

Viet Anh (t/h)

Source: https://doanhnghiepvn.vn/quoc-te/-bong-ma-lam-phat-thap-de-doa-eurozone-ecb-doi-mat-voi-quyet-dinh-cat-giam-lai-suat/20241014090452478