The European Central Bank is set to make its final interest rate cut of the year tomorrow, Thursday – and while the institution is expected to commit to a quarter-point cut rather than half a percentage point, economists expect a faster pace of monetary policy easing lies ahead.
This meeting remains crucial for setting guidance for next year, especially because ECB staff will issue their quarterly macroeconomic forecasts on growth and inflation. This forecast will take into account the highly uncertain global impact of Donald Trump’s return to the White House and his threats to impose sweeping trade tariffs.
The bloc’s central bank has so far cut its key interest rate from 4% to 3.25% this year via three 25 basis point increases between June and October.
The possibility that the ECB will choose to cut interest rates by 50 basis points to round out 2024 appears to be on the cards after its recent fall meeting, with several policymakers telling CNBC that they will remain data-reliant, but a significant slowdown in inflation in the eurozone… The bloc’s deteriorating economic outlook may justify a major move in December.
Money market rates now point to little chance of a big cut and as of Wednesday morning, about 29 basis points of cuts have been priced in for December, and economists say a November rise in negotiated wage growth will warrant caution.
Headline inflation rose again above target in November, rising to 2.3% from 2% in October. Meanwhile, the euro zone economy grew at its fastest pace in two years in the third quarter, albeit at a rate of just 0.4%.
