by Francesco Canepa and Balazs Koranyi
FRANKFURT (Reuters) – The European Central Bank (ECB) is expected to start cutting interest rates on Thursday and acknowledge progress in the fight against inflation, while stressing that the fight is not yet over.
ECB officials have made clear their intention to cut borrowing costs after seeing a decline in inflation across the 20 euro zone countries in recent months.
The decline in inflation, which rose to a level slightly above the 2% target set by the ECB after exceeding 10% at the end of 2022, was seen as more than enough for the institution to start reducing its interest rates.
Such a reduction would come after similar decisions by the central banks of Canada, Sweden and Switzerland.
However, ECB President Christine Lagarde and her colleagues are unlikely to commit to further rate cuts, while uncertainties persist over the evolution of inflation in the euro zone.
Instead, they should emphasize that any new decisions will be made based on upcoming data and that borrowing costs must remain high enough to contain inflation.
“(This) decline will define the new direction of (central bank) policy, but as economic dynamics exceed expectations and domestic inflation proves difficult to control in 2024, the ECB can afford to go slowly and let the data define the parameters of the easing cycle,” Deutsche Bank economists wrote in a note.
All 82 economists polled by Reuters predicted that the ECB would cut its deposit rate by 25 basis points on Thursday, to 3.75%.
Most economists still expect the ECB Governing Council to make two further rate cuts this year, probably in September and December.
( Camille Raynaud)
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