The inflation rate within the Euro zone experienced a sharper decline than anticipated in September, bolstering the argument for an additional reduction in interest rates led by the European Central Bank (ECB).
According to Eurostat, the rate of price growth in consumer goods across all countries using the single currency saw a slowdown from 2.2% in August to 1.7% in September. This is in contrast to an early forecast published previously this month which projected a 1.8% inflation rate.
Within the Euro zone, Ireland recorded the smallest inflation rate, a decline from the prior estimate of 0.2% to 0.0%, as indicated by the harmonised index of consumer prices (HICP).
Based on these figures, expectations are building for another round of interest rate reductions sponsored by the ECB in the order of a quarter point. With inflation dropping unexpectedly rapid, and economic activity across Europe decelerating at a concerning speed, Frankfurt is predicted to trim its deposit rate from 3.5% to 3.25%.
In the ECB’s own projections published last month, the third quarter is predicted to suffer a slowdown in growth down to 0.2%, with a mere 0.8% growth expected for the entire year of 2024.
This would be the ECB’s third time this year to slice rates and the first time in 13 years it has declared repeated cuts. This measure would immediately be beneficial for numerous tracker mortgage owners in the Republic, and local lenders are also poised to face demands to minimise both fixed and variable rates prior to the year’s end.
Markets have largely accounted for today’s forecasted rate cut and attention is anticipated to shift to ECB president Christine Lagarde’s remarks following the meeting. While clarity about future steps is not predicted for Thursday’s meeting, the common view is that a cut will be implemented at every meeting until next spring, based on the loss in growth momentum and slowdown in inflation.
“Anticipating further reduction in growth momentum and a continued moderation in inflation, we are now of the opinion that the ECB will lower rates by 25 basis points at the upcoming four meetings,” commented UBS economist Reinhard Cluse.
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