ECB prepares for another interest rate cut: Tomorrow the Governing Council is expected to announce a new cut of 25 basis points as widely expected. An intervention that responds to the rapid deterioration of the economic situation in the Eurozone, confirmed by the latest manufacturing PMI data, which paints a clearly bearish picture.
Latest manufacturing data
The latest investigation of Manufacturing PMI In the Eurozone reported that the Purchasing Managers’ Confidence Index fell again in September 2024, 45 points From the previous 45.8, slightly better than the initial estimate of 44.8 points. However, the indicator of the health of the manufacturing sector remains below the 50-point threshold, which serves as the watershed between recession and expansion.
It is a “strong e Rapid deterioration of health of manufacturing companies in the Eurozone. Notably, the main index fell to its lowest level of the current year. Less than the average contraction of the previous 27 months“, explains S&P Global, which is responsible for the survey of purchasing managers in the eurozone. The survey also highlighted that eurozone manufacturing output fell at the fastest rate ever in 2024.
Inflation sent to ECB target.
The last Euro Tower Monthly Bulletin Confirmed that, on the price front, the scenario is “consistent”. Inflationary trendwhich is moving at a faster pace and more or less in line with what was expected.” The ECB will therefore proceed with a “gradual approach” to adjusting rates to the pace of ongoing disinflation.
“Based on the latest assessment of the inflation outlook, core inflation dynamics and the strength of monetary policy transmission – we read in the minutes – it is It is appropriate to take it one step further to moderate the degree of restrictive monetary policy”. From the minutes it emerges that bankers are confident “a Timely return of inflation to targetand that “a phased approach to reducing restrictions would be appropriate if incoming data were consistent with the baseline projection.”
Another kit is needed.
“A rate cut is very likely and won’t be the last”Governor of the Banque de France and member of the ECB Governing Council recently confirmed, Francois Villeroy de GalhauHe added that the “subsequent pace” of possible cuts would depend only on the evolution of the fight against inflation, which he sees as around 2 percent in France early next year and around 2 percent in Europe by 2025. will remain
Besides, another member of the Executive Committee, Frank Aldersonspoke of a weaker-than-expected eurozone economy and suggested the possibility of new interventions. “Several recent indications – Banker’s explanation – suggest that i Adverse growth risks economic Already taking shape. So we will need to carefully consider whether this will have any impact on our inflation forecasts.
What do analysts think?
General investment Leaning towards a 25 points reduction in rate by the ECB. “Following a series of disappointing macroeconomic data, Governing Council members have become more accommodative in their public comments, fueling expectations that monetary policy will again be on the loose at the next meeting on October 17. will be restrictive,” explains Martin Wolberg, senior economist at Generali Investments. , by adding “a potential Greater emphasis on development risks And should support fewer concerns about inflationary risks. Expectations of gradual rate cuts in future meetings“
Packett Wm Lean towards one “Acceleration” of relaxation. monetary conditions and believes that the ECB can “expect a conversion towards neutrality (which we believe is around 2%)” by cutting 25 basis points at each meeting from now until June 2025. 100 points in first semester of next year. For Pictet experts “the risk is that the ECB will be forced to cut rates even faster than currently expected, even bringing the deposit rate below its neutral level”.
Pimco Agrees that a 25-point rate cut in October is “reasonable” and that “Another rate cut is likely in December.”Just as the terminal rate estimate of around 2% for the second half of next year “remains consistent” with neutral rate estimates for the euro area.
What will happen to those who have a mortgage?
Deduction of ECB, by Euribor realignmentwill have an immediate impact on mortgage payments. According to Facile.it calculations, “In the coming months Variable mortgage installment standard It will decrease by about 18 euros.” “To date, thanks to cuts by the ECB in 2024 – highlighted – the drop for standard mortgages has been just over €36, but the good news is that the index will continue to rise in the coming months. The decline must continue” and therefore “episodes may occur. A decrease of about 95 euros by the end of next year“
