ECB May Cut Interest Rates Next Month Amid Ongoing Inflation Concerns

Speculation is mounting that the European Central Bank (ECB) might lower interest rates next month, with September becoming a critical point of focus.

Most analysts, over 80%, are anticipating a rate cut, potentially alongside the Federal Reserve, and are even predicting another reduction in December.

The push for a rate decrease is driven by persistent inflation, which continues to exceed the ECB’s 2% target. ECB President Christine Lagarde has emphasized that any rate adjustments will hinge on future inflation reports.

Currently, the ECB’s main rates stand at 4.25% for refinancing and 3.75% for deposits, following a slight reduction in June 2024. The bank faces the dilemma of curbing inflation while avoiding further economic strain in the Eurozone, which is already experiencing slow growth and rising costs.

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Martins Kazaks, a key ECB official and Latvia’s central bank head, has indicated a willingness to consider another rate cut in September but will wait for new data before making a decision. He noted that while current monetary policy has helped manage inflation, growth remains weak due to insufficient structural changes.

The ECB’s July meeting maintained a cautious stance, acknowledging ongoing inflation risks. Recent wage data suggests a potential moderation, which could help align inflation with the 2% target by 2025. Kazaks remains optimistic that achieving this goal is still feasible, even with possible additional rate cuts.

Alexander Stefanov