From Morningstar: 2024-12-09 03:59:25

The European Central Bank is expected to cut its key interest rate by 0.25 percentage points to 3.00% at the Dec. 12 meeting to guide inflation towards its 2% target amid weaker economic growth in the eurozone. Eurozone inflation currently stands at 2.3%, slightly above the ECB’s target, but inflation is considered under control.

There is a debate over the size of the rate cut, with some economists suggesting a larger 0.5 percentage point cut. Risks remain in Europe, with US trade restrictions posing a significant threat. Analysts predict further rate cuts in 2025, potentially bringing deposit rates close to 2%.

Various analysts have different expectations for the extent of rate cuts in 2025, with some predicting six 0.25 percentage point cuts throughout the year. DWS forecasts the ECB to cut rates by 0.25 percentage points at each of the next five meetings, bringing the deposit rate to 2% by June 2025.

Political instability in key eurozone economies, such as France and Germany, has added challenges for the ECB. In France, higher bond spreads have resulted from the government’s loss in a no-confidence vote. Germany faces internal political struggles and external pressures, affecting its economic outlook.

While the ECB pursues an easing cycle, the US Federal Reserve is expected to maintain a cautious approach. This divergence could weaken the euro against the dollar, potentially benefiting eurozone exporters. Equity markets tend to rise on anticipated rate cuts, while bond markets see lower yields and lower cash savings rates for savers.



Read more at Morningstar: ECB Rates Decision: What to Expect on Dec. 12