ECB Meeting: Interest Rate Cuts Expected Today – Live Updates and Insights

ECB Meeting Update: October 17, 2023

Today is the long-anticipated day for the European Central Bank (ECB) meeting on Thursday, October 17, which is projected to announce its third interest rate cut for the Eurozone this year, with a reduction of 25 basis points.
Real-time updates on market reactions, the announcement, and any statements from ECB President Christine Lagarde will be continually provided by Money.it.

In recent days, confirmations have come from several key ECB officials, chief among them François Villeroy de Galhau, Governor of the Bank of France, and Philip Lane, the ECB’s chief economist.
Economists expect that today’s cut would follow closely on the heels of last month’s reduction announced on September 12, as well as the inaugural reduction by Lagarde on June 6.
This marks a transition from the tightening monetary policies that have prevailed for the past two years, although it is important to remember that the ECB is still maintaining a restrictive stance, focused on controlling inflation.

Real-Time Market Updates

As the meeting occurs, market indicators show mixed activity.
Currently, BTPs are stable at 3.41%, while the yield for French OATs has risen to 2.94%.
German Bunds are also seeing an increase, reaching 2.20%.
The spread between BTPs and Bunds has contracted to around 121 basis points.

In the foreign exchange market, the euro-dollar pair remains relatively unchanged at $1.0861.
Even with the Eurozone’s inflation data for September being revised downwards from 1.8% to 1.7%, major fluctuations in currency values have been minimal.

Inflation and Economic Projections

The ECB is expected to reduce borrowing costs for the second consecutive meeting for the first time in 13 years.
Market predictions for the trajectory of future interest rates have also softened, with Jack Allen-Reynolds from Capital Economics forecasting a steady reduction of 25 basis points in upcoming decisions until the deposit rate falls from 3.5% to 2.5%.
Rabobank’s research division anticipates an even lower neutral rate of around 2% by the end of 2025.

The final inflation reading for September, just released hours before the ECB’s announcement, showed a CPI increase of only 1.7%.
This continues to affirm the declining inflationary pressures, which remain below the ECB’s 2% target.
Core inflation, however, has risen, reaching an annual rate of 2.7%.

Focus on Growth and Policy Adjustments

Concerns have arisen, particularly regarding the recent economic performance of Germany, which has acknowledged a second consecutive year of expected recession in 2024.
Critics argue that the ECB’s cautious approach could hinder necessary monetary stimulus, especially in light of deteriorating economic fundamentals across the Eurozone.

Villeroy recently stated the probability of an additional rate cut, referencing the downward trend in inflation, while Lane echoed sentiments on returning to the inflation target sustainably.
Analysts remain skeptical, however, emphasizing that external conditions and structural weaknesses should be taken into account, as declining inflation alone may not warrant immediate actions from the ECB.

Goldman Sachs has indicated confidence in today’s anticipated rate cut, asserting this belief stems from worsening economic indicators.
Nevertheless, ING’s Carsten Brzeski remains circumspect, arguing that merely weak confidence indicators may not suffice for changing previous rate-cut strategies.

Ahead of the meeting, sentiments point toward necessity for quick decisions from the ECB, balancing the need for economic support against the imperative of controlling inflation.
The market awaits today’s outcomes with bated breath.