Financial markets are abuzz with speculation that the European Central Bank (ECB) may deepen its rate cuts in December due to weak economic data. With business activity indicators pointing to a slowdown, money markets are now pricing in a 50% chance of a half-percentage point cut by the ECB. This comes after the bank already implemented rate reductions in September and October for the first time in 13 years.
The recent decline in government bond yields following poor October business activity readings further supports the expectation of a larger rate cut. The eurozone’s annual inflation has fallen to 1.8%, below the ECB’s 2% target, leading to increased pressure on the central bank to take action.
ECB officials are divided on the necessity of a significant rate cut, with some emphasizing economic risks while others highlight inflation concerns. The upcoming release of key economic data, including the consumer price index for October and third-quarter GDP figures, will provide further insight into the region’s economic trajectory.
Despite the division among ECB members, market analysts anticipate the bank to maintain a gradual approach to rate reductions given the persistent upside risks in inflation. However, the possibility of a larger rate cut in December remains a topic of interest, with potential repercussions on market sentiment and economic stability in the eurozone.
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