Europe | The ECB steps on the accelerator

Summary

A little over a month and a half ago, after the September monetary policy meeting, it was considered unlikely that the European Central Bank (ECB) would cut interest rates in October.

Key points

• Key points:
• However, weak activity indicator (PMI) results for September, coupled with inflation below the 2% target, quickly changed expectations.
• The rate cut became practically certain, and finally materialized at the October meeting, when the institution decided to reduce rates by 25 basis points, in a unanimous decision of the Governing Council.
• The growth outlook for the eurozone remains challenging. GDP data shows clearer signs of weak growth than of a sharp decline. This situation is reflected in the ECB's communications, which stays confident in a "soft landing" of the economy.
• On inflation, the ECB admitted that the pace of deceleration has been faster than expected, reinforcing confidence that the price stability objective is "on track".
• Monetary policy in the eurozone is still restrictive, so there is room for further cuts. If the economy remains weak or inflation stabilizes below 2%, the ECB could reduce interest rates below the neutral rate to revive the economy, a scenario that is already being discussed at the institution.

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