By Chrysostomos Tsoufis

After June 6 and the first interest rate reduction from September 2019, it’s time for the second one. It will come as a surprise to many if the ECB does NOT cut interest rates at noon. The vast majority of analysts and economists estimate that the reduction will be of the order of 25 basis points.

All analyzes characterize today’s reduction as “bloodless” since even the hardliners of the Board have not expressed particular objections since the inflation in the Eurozone it hit a 3-year low in August at 2.2%, a breather from the 2% target.

However, to the question of what will happen after today’s meeting, the answer is not so easy as the data made available to Frankfurt can support both the choice of the new reduction in October and the “pass”.

Growth in the Eurozone is at the … limits of appearance. At just 0.2% in the second quarter from 0.3% in the first with many analysts openly calling the situation in Europe a “black mess”. Some go even further in accusing her ECB that the latest increase in September 2023 was completely unnecessary and “hurt” the eurozone economy even more. Today the ECB will also publish its revised estimates for the growth of the Eurozone and many fear that it will be at hand.

At the same time, data on increases in workers’ wages – which Frankfurt puts a lot of weight on – show a slowdown. 4.3% in the second quarter from 4.8% in the first quarter. 2 figures that “shout” that interest rates must fall further.

On the other hand, there are also sizes that need attention. On the one hand, structural inflation – with the exception of food and energy, which are volatile variables – remains high at 2.8% mainly due to services, whose inflation is at 4.2%.

And of course there is always the fear of a resurgence in energy prices as long as the situation in the Middle East and Ukraine does not calm down. Natural gas, for example, is at €35.8/Mwh, but it does not cease to be – with the exception of some days in August – the highest price since Christmas.
In addition, the slowdown in employee salary increases may turn out to be temporary if the predictions of, for example, Isabelle Schnabel, a member of the ECB’s Executive Board, come true.

In this context, most estimates agree that in Slovenia and the October meeting, Central Bank will …stop to “analyze” the available evidence.

Today’s reduction does not mean anything special for Greek borrowers, however, as the banks have frozen mortgage rates corresponding to the three-month Euribor of 2.85%. At the moment Euribor is around 3.55% so it is even much lower and therefore the borrowers are protected. Based on analysts’ estimates of the path of interest rates, Greek borrowers are expected to see their loan installments fall sometime by June 2025.