The European Central Bank lowered its interest rates on Thursday as economic indicators in the Eurozone continued to point to slowing activity.
As expected, the bank announced 25-basis point cuts for its three key interest rates, a decision that lowered the deposit rate to 3.25%. The announcement came from Ljubljana, home of the Bank of Slovenia, where officials gathered for this month’s meeting.
The Stoxx Europe 600 index continued higher shortly after the announcement and was trading up more than 1% on the day.
“Alongside its decision to cut interest rates by 25bps, the ECB stuck to its guidance about data dependence and making decisions on a meeting-by-meeting basis,” Capital Economics said in a note. “But the press release also acknowledged the recent weakness of activity and continued decline in inflation. We think the data will support 25bp rate cuts at each of the next few meetings, at the very least.”
Following Thursday’s announcement, analysts and financial markets were still widely predicting another 25bp reduction in December.
Dependency on down data
Further signs that both price and GDP growth were continuing to wane in the euro area have emerged since the ECB’s last rate cut just five weeks ago.
The EU statistics office Eurostat offered additional evidence of disinflation just hours before Thursday’s decision, announcing that September’s final rate of headline annual consumer price growth in the currency area fell to 1.7%. This compared to 1.8% in the preliminary report and 2.2% in August, with the former sparking a more dovish stance among ECB policymakers, who had been messaging a likely hold this month following the September cut.
As inflation declined, purchasing managers’ indices for the Eurozone pointed to an even larger slowdown in the economy, with German investor morale and business confidence also heralding tough times.
Carsten Brzeski, head of macroeconomic research at ING, said the public lender’s second consecutive interest rate cut “suggests that the ECB must have become much more concerned about the Eurozone’s growth outlook and the risk of inflation undershooting the target. Interestingly, the official language in the ECB's decision was almost unchanged from the September meeting.”
Costs for consumers continues to wane, with the bank noting, “The inflation outlook is also affected by recent downside surprises in indicators of economic activity.”
Lagarde: Inflation declines ‘on track’
According to ECB President Christine Lagarde, “The disinflationary process is well on track.”
She said consumer price growth is expected to rise in the coming months before declining to the bank’s target in the course of next year. The statement was a slight adjustment from previous comments about first hitting the preferred level at the end of 2025, suggesting the bank could reach its goal earlier. She declined to provide more details during the press conference.
Growth remains an issue as it has “clearly come in a bit below what we have anticipated,” Lagarde told journalists. She pointed to contraction in the manufacturing sector as an example.
However, current information, including suggestions of significant weakness in the German economy, has not changed the view of the ECB on the path of the euro area economy, she explained. “We certainly do not see a recession. We are still looking at that soft landing.”
And the governing council appeared to be firmly behind Thursday’s cuts, with Lagarde telling journalists that the decision to lower borrowing costs was unanimous.
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session_info.http_referrer = data.http_referrer;
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var months = ['Jan','Feb','Mar','Apr','May','Jun','Jul','Aug','Sep','Oct','Nov','Dec'];
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- Officials shave 25bps from key rates
- September inflation adjusted lower
- Economic concerns move to forefront
- Lagarde: Eurozone can expect soft landing
By Eric Culp
European Editor, LiveSquawk News
@EricCulpLS
17 October 2024 | 14:45 GMT
The European Central Bank lowered its interest rates on Thursday as economic indicators in the Eurozone continued to point to slowing activity.
As expected, the bank announced 25-basis point cuts for its three key interest rates, a decision that lowered the deposit rate to 3.25%. The announcement came from Ljubljana, home of the Bank of Slovenia, where officials gathered for this month’s meeting.
The Stoxx Europe 600 index continued higher shortly after the announcement and was trading up more than 1% on the day.
“Alongside its decision to cut interest rates by 25bps, the ECB stuck to its guidance about data dependence and making decisions on a meeting-by-meeting basis,” Capital Economics said in a note. “But the press release also acknowledged the recent weakness of activity and continued decline in inflation. We think the data will support 25bp rate cuts at each of the next few meetings, at the very least.”
Following Thursday’s announcement, analysts and financial markets were still widely predicting another 25bp reduction in December.
Dependency on down data
Further signs that both price and GDP growth were continuing to wane in the euro area have emerged since the ECB’s last rate cut just five weeks ago.
The EU statistics office Eurostat offered additional evidence of disinflation just hours before Thursday’s decision, announcing that September’s final rate of headline annual consumer price growth in the currency area fell to 1.7%. This compared to 1.8% in the preliminary report and 2.2% in August, with the former sparking a more dovish stance among ECB policymakers, who had been messaging a likely hold this month following the September cut.
As inflation declined, purchasing managers’ indices for the Eurozone pointed to an even larger slowdown in the economy, with German investor morale and business confidence also heralding tough times.
Carsten Brzeski, head of macroeconomic research at ING, said the public lender’s second consecutive interest rate cut “suggests that the ECB must have become much more concerned about the Eurozone’s growth outlook and the risk of inflation undershooting the target. Interestingly, the official language in the ECB's decision was almost unchanged from the September meeting.”
Costs for consumers continues to wane, with the bank noting, “The inflation outlook is also affected by recent downside surprises in indicators of economic activity.”
Lagarde: Inflation declines ‘on track’
According to ECB President Christine Lagarde, “The disinflationary process is well on track.”
She said consumer price growth is expected to rise in the coming months before declining to the bank’s target in the course of next year. The statement was a slight adjustment from previous comments about first hitting the preferred level at the end of 2025, suggesting the bank could reach its goal earlier. She declined to provide more details during the press conference.
Growth remains an issue as it has “clearly come in a bit below what we have anticipated,” Lagarde told journalists. She pointed to contraction in the manufacturing sector as an example.
However, current information, including suggestions of significant weakness in the German economy, has not changed the view of the ECB on the path of the euro area economy, she explained. “We certainly do not see a recession. We are still looking at that soft landing.”
And the governing council appeared to be firmly behind Thursday’s cuts, with Lagarde telling journalists that the decision to lower borrowing costs was unanimous.
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