The European Central Bank (ECB) has chosen to maintain its primary interest rate at 3.75 percent, fuelling speculations of a potential rate cut in September, despite uncertainty tied to geopolitical issues and swift wage increases that might continue to inflate prices. This decision by the ECB’s governing council to steady its benchmark deposit rate meets market predictions.
Investors, however, will closely tune into ECB President Christine Lagarde’s press briefing on Thursday to gain insights on potential future rate reductions, following the initial quarter percentage point decrease in June. Most financial analysts anticipate the ECB to potentially lower rates at its ensuing meeting set for September 12, given the supporting data indicating a foreseeable decrease in inflation towards its projected goal of 2 percent by the end of the following year.
The growth in consumer price in the Eurozone has eased from its peak of 10.6 percent in October 2022 to 2.5 percent in June. Rate setters are apprehensive about political upheaval, specifically following the recent ambiguous election results in France which escalated scepticism over whether a profligate new government in the region’s second largest economy would trigger inflation.
There are further worries that a potential win for Donald Trump in the US presidential elections in November could induce inflation in Europe through instigating a trade conflict. The Eurozone is currently facing a wage increase of 5 percent, with workers demanding compensation for the severest inflation outbreak witnessed in a generation that sustains inflation over 4 percent in the labour-intensive service sector. –Copyright The Financial Times Limited 2024