ECB decision depends on data

Note: This section contains information in English only.
Source: Dukascopy Bank SA


European Central Bank's (ECB) upcoming Thursday's policy meeting will include the announcement of the Euro's base interest rate, the Main refinancing rate. It will affect all the EU and rest of financial markets as well. In general, the markets expect a rate cut, as slow European growth forecasts suggest that there is a need for capital cost reduction.

Meanwhile, the ECB rate cut may signal an upcoming recession in the upcoming quarters, if cuts are more significant than necessary for a simple capital cost reduction. Unexpected "Dovish cuts" are a possibility as European Economic Sentiment in the EU and in the Euro Zone are not convincing that the future of the economy is set to be bright. However, argument of deeper cuts can be considered, when looking at current long term inflation data.

Currently, inflation levels of Euro area for August 2024 have reached 2.2% percent (Highest Belgium, 4.5%, Lowest Lithuania 0.7%). The 2.2% is the lowest inflation percentage that has been observed for a while, which has restored the central planner's credibility of "taming the inflation, that occurred after the fiscal stimulus done during the COVID period.

Either way, market consensus suggests that the most unlikely scenario is that rates will be unchanged or raised. The decision is dependent on future inflation forecasts, and the strength of the economy in the Euro area.
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