ECB Cuts Interest Rates Again Amid Slowing Eurozone Inflation and Growth Concerns

The European Central Bank (ECB) has cut interest rates again as inflation in the Eurozone slows and economic growth falters. However, no clear guidance was given on future actions, even though investors expect continued easing in the coming months. The deposit rate was lowered by 25 basis points to 3.5%, a move anticipated after a similar cut in June. Inflation is now nearing the ECB's 2% target, while the Eurozone economy skirts the edge of recession.

Although this cut was widely expected, investors are now focusing on the next steps and how ECB policy might be influenced by the U.S. Federal Reserve, which is also expected to begin cutting rates soon. However, ECB President Christine Lagarde refrained from pre-committing to any specific rate path, emphasizing the bank's "data-dependent" approach, which considers multiple indicators before deciding on further action. She noted that inflation data in September might be skewed by statistical base effects.

Markets showed little reaction to the move or the lack of forward guidance, which analysts attributed to the ECB's cautious stance. According to Carsten Brzeski, ING's Global Head of Macro, the ECB is likely to proceed cautiously, given its poor track record in predicting inflation during its rise. The ECB wants to ensure it fully understands the situation before making further aggressive rate cuts.

Lagarde described the inflation situation in the euro area as mixed. While wages continue to rise, overall labor cost pressures are moderating. However, more cautious policymakers from southern Eurozone nations argue that high rates are now stifling growth, increasing the risk of an economic downturn. On the other hand, inflation hawks warn that the labor market remains overheated, and underlying...