international observation丨the bleak economic outlook may cause the european central bank to accelerate the pace of interest rate cuts
2024-09-13
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xinhua news agency, frankfurt, september 12title: the bleak economic outlook may cause the european central bank to accelerate the pace of interest rate cuts
xinhua news agency reporter shao li
the european central bank held a monetary policy meeting on the 12th and decided to cut the deposit mechanism interest rate by 25 basis points to 3.50%. this is the second time the bank has cut interest rates since it announced a rate cut in june this year. analysts pointed out that although the ecb still adheres to the prudent rate cut strategy of not committing to a specific interest rate path in advance, the bleak economic outlook in the eurozone may cause the ecb to accelerate the pace of rate cuts.
the latest interest rate cut decision of the european central bank is in line with the general expectations of economists and financial market investors. it is worth noting that at this meeting, the european central bank announced that it would implement a new monetary policy operating framework starting on the 18th. according to this framework, the spread between the main refinancing rate, one of the three major interest rates in the euro zone, and the deposit mechanism rate narrowed to 15 basis points, while the spread between the marginal lending rate and the main refinancing rate remained at 25 basis points. therefore, after the announcement of the interest rate cut, the main refinancing rate and the marginal lending rate among the three major interest rates in the euro zone fell to 3.65% and 3.90% respectively.
european central bank president christine lagarde speaks at a press conference at the european central bank headquarters in frankfurt, germany on september 12. photo by xinhua news agency reporter zhang fan
experts pointed out that against the backdrop of the ecb's gradual reduction of its balance sheet, there have been concerns about a possible liquidity bottleneck in the capital market. the new operational framework aims to make it easier for banks to obtain liquidity by lowering short-term loan rates.
european central bank president christine lagarde refused to comment on the interest rate outlook when answering reporters' questions that day. she stressed that although the wage increase in the euro area has fallen, it is still too high and the pressure on service prices is greater than expected.
iris bettger-klaus, general manager of the german federal association of public banks, believes that the ecb's further interest rate cut is the result of a combination of factors such as falling inflation, economic stagnation and a slowdown in wage increases, but the "stubborn inflation risk" has not yet been completely eliminated.
the ecb also released its latest inflation forecast for the eurozone on the 12th, slightly raising the eurozone's core inflation rate (excluding energy and food price increases) for this year and next. commerzbank analysts believe that the ecb is still worried about new inflation risks brought about by rising service industry prices, so the next interest rate cut will not be announced until december.
this is the european central bank building photographed in frankfurt, germany on december 14, 2023. photo by xinhua news agency reporter zhang fan
carsten brzeski, head of macro research at ing, predicts that the ecb is expected to accelerate the pace of interest rate cuts next year, with the weakening us economy and its impact on the eurozone possibly being the trigger.
in the second quarter of this year, the eurozone's gdp maintained its low growth trend in the first quarter, with the economies of germany, latvia, sweden and hungary shrinking to varying degrees. in july, the european central bank adjusted its assessment of the eurozone's economic growth prospects to "tend to the downside." brzeski believes that it is only a matter of time before the bleak growth outlook leads to more aggressive interest rate cuts.
according to the latest forecast of the european central bank, the eurozone's economic growth rate will be 0.8% in 2024, 1.3% in 2025 and 1.5% in 2026, all down 0.1 percentage points from the previous forecast. lagarde said that private consumption in the eurozone has declined and industrial production has become even more sluggish, and interest rate cuts can promote consumption.
in june, the ecb cut interest rates for the first time since it stopped raising them in october last year, but kept rates unchanged at its july monetary policy meeting. the next ecb monetary policy meeting will be held on october 17.
