ECB to begin rate cuts amid continued inflation struggles

The European Central Bank (ECB) is poised to cut interest rates from record highs on Thursday, reflecting progress in reducing inflation from over 10 per cent in late 2022 to just above the 2 per cent target recently, Reuters reported.

This marks the ECB’s first cut since 2019, likely lowering the deposit rate to 3.75 per cent from 4.0 per cent. However, ECB President Christine Lagarde and colleagues are expected to emphasise that further reductions will depend on incoming data, as inflation may prove stickier than anticipated.

Despite the cut, some experts, like Algebris Investments’ Gabriele Foà, view this move as potentially premature. Most economists predict two additional rate cuts by year-end, with money markets pricing in one to two more moves, possibly in September and December.

The ECB’s decision comes amid stronger-than-expected economic data, including a rebound in eurozone inflation to 4.1 per cent in May and increased wage growth.

The central bank is also expected to revise its GDP forecast upward when it releases new projections on Thursday.