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ECB's Potential Interest Rate Cut: December 2024
BY TIO Staff
|december 10, 2024The European Central Bank (ECB) is gearing up for its December 12th policy meeting, with expectations set for a 25 basis points reduction in its key interest rate.
The decision aligns with a broader strategy that could see further rate reductions in 2025, driven by escalating global economic challenges, including the potential fallout from trade policies under U.S. President-elect Donald Trump.
Keep reading to learn more about it
The Immediate Impact of The Expected Rate Cut
ECB policymakers are widely expected to back the 25 basis point interest rate cut from 3.40% to 3.15%. Some prominent voices, such as Joachim Nagel of Germany’s Bundesbank and François Villeroy de Galhau of the Bank of France have expressed support. This move is aimed at addressing inflation, which stands at 2.3% and is slightly above the ECB’s 2% target. By lowering rates, the ECB hopes to ease financial conditions, stabilize the economy, and safeguard purchasing power against external economic pressures.
Future Monetary Policy and Economic Forecasts
After December, the ECB is likely to adopt a more flexible, meeting-by-meeting approach, avoiding explicit forward guidance. This adaptable strategy allows the ECB to respond swiftly to shifting economic conditions. Many analysts anticipate further rate cuts throughout 2025, potentially reducing the deposit rate by up to 1%.
Projections for eurozone economic growth suggest a modest 1.0% increase in 2025, rising slightly to 1.2% in 2026. These figures reflect a subdued outlook, influenced by an expected economic slowdown and the potential impact of U.S. trade policies. Despite these challenges, inflation is projected to return to the ECB’s 2% target by mid-2025, maintaining this level through 2027.
According to data from Trading Central on our economic calendar, for historical events;
- The price change on the EURUSD for the past 7 events ended bullish 38% of the time, over a 4 hour period after the announcement.
- The average price range for the EURUSD over a 4 hour period after the announcement was about 48 pips.
Conclusion
The ECB’s December policy move reflects its commitment to tackling inflation and laying the groundwork for future stability. The anticipated easing trajectory, highlights the bank’s readiness to act decisively in support of economic growth. In navigating political instability and global trade risks, the ECB demonstrates a careful balance of caution and adaptability, ensuring it can respond effectively to an ever-changing economic landscape.
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