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.

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.