The European Central Bank (ECB) has made the expected move by lowering interest rates by 25 basis points, bringing the deposit rate to 3%. This decision aligns with analyst consensus, despite differing opinions among ECB members about the magnitude of the cut.

Daniel Bergvall, SEB’s chief economist, noted, “It is clear that they want to proceed with the usual 25-basis-point steps until they see inflation further down.” The rationale behind the rate cut includes a slower economic recovery than anticipated in the September forecasts.

Looking ahead, the market has already priced in more rate cuts from the ECB in 2025. Bergvall predicts a double rate cut in March next year, as the central bank is expected to have a firmer footing by then. SEB’s own forecast from November suggests that the euro area’s core inflation will decline more rapidly in the early part of next year, paving the way for faster rate cuts in the first quarter.

During the press conference following the rate decision, ECB President Christine Lagarde acknowledged the ongoing disinflation process. However, Bergvall pointed out that it was notable that the ECB did not revise down its core inflation forecast. The bank projects an average core inflation of 2.9% for 2024, 2.3% for 2025, and 1.9% for both 2026 and 2027.

SEB’s own forecast indicates that the euro area’s core inflation will reach 2.9% in 2024, 2.1% next year, and 1.9% in 2026. Looking closer to home, the Swedish Riksbank is expected to announce its final interest rate decision of the year next week, with a rate cut almost certain, according to Bergvall.

“It would take a lot for us not to see a rate cut next week,” he stated confidently. As central banks navigate economic challenges and uncertainties, the global monetary policy landscape remains dynamic and closely watched by market participants. Stay tuned for more updates on how these decisions shape the future of the global economy.

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