The European Central Bank meets next Thursday for the last time in 2024, and economists overwhelmingly expect it to cut interest rates by another 25 basis points – which would be the fourth such move this year.
The market thinking and the general thrust of the ECB’s arguments is that the central bank has managed to control inflation to some extent and should return to a neutral interest rate – around 2% if inflation remains at ECB target levels.
At that point, the bank will have no choice but to wait for the cyclical recovery to stabilize, while remaining alert to the multiple political and trade risks that may unfold through 2025.
Earlier, European Central Bank President Christine Lagarde presented a sketch of this scenario at a hearing in the European Parliament, despite a lively debate among policymakers about deeper and faster interest rate cuts to overcome the German-led full-blown economic recession.
If gradualists take control, this suggests a quarter-percentage-point cut at each meeting until mid-2025 to return the current deposit rate of 3.25% to those rough estimates of “neutrality.”
