What are the odds for a new interest rate increase in the Eurozone?
The euro zone is grappling with challenges. Even though inflation is descending at a sluggish pace, the economic growth remains static.
As of August, the consumer price inflation, less food and energy – commonly referred to as the core rate – marked 5.3% on an annual basis.
The Gross Domestic Product (GDP) witnessed a marginal rise in the second quarter, accounting for 0.1% over the preceding quarter and 0.5% year-over-year.
Since the summer of 2022, there hasn’t been any notable increase in credit volumes. Vital indicators, like the European Commission’s economic confidence and purchasing managers’ indices, have plunged to such extents that predictions for the GDP in the upcoming quarter imply a potential downturn.
Regarding the European Central Bank’s imminent meeting on Thursday, the consensus among analysts foresees the interest rates remaining stable (3.75% for deposit and 4.25% for the primary refinancing operations).
This stance mirrors the current market valuations. Recent addresses from Council members offer varied perspectives. An increase in the principal rate in this stagnant economy could underscore the bank’s dedication to meeting its inflation objectives.
Yet, considering the deflationary trends in China (with producer prices dropping by 3.0% annually in August), the looming threat of a downturn in the euro zone, contrasted with the robust growth in the USA (as per the Atlanta Fed’s prediction of an annualized 5.6% growth in the third quarter), the European Central Bank might opt for a patient strategy, refraining from altering the key rates.
The delayed repercussions of fiscal restrictions on growth and inflation can vary in both its impact and duration. To put it plainly, current projections aren’t wholly reliable, prompting the central bank to rely on available economic reports. Given the tapering growth and the ambiguous impact on inflation, the bank might maintain a vigilant yet assertive posture concerning inflation.