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The
bank’s rate-setting council is expected to lower its benchmark
rate from 3.5% to 3.25% at a meeting taking place in Llubljana,
Slovenia, rather than its usual Frankfurt, Germany,
headquarters. The anticipated cut would be its third since June.
Inflation has been falling by more than anticipated — in
September, it was down at 1.8%, the first time it has been below
the ECB’s target of 2% in more than three years — and analysts
think the bank will lower rates in December, too. Mounting
evidence that the eurozone is barely growing — just 0.3% in the
second-quarter — has only accentuated the view that ECB
President Christine Lagarde will not seek to dislodge that
expectation.
“The trends in the real economy and inflation support the case
for lower rates,” said Holger Schmieding, chief economist at
Berenberg Bank.
One reason why inflation has fallen around the world is that
central banks dramatically increased borrowing costs from near
zero during the coronavirus pandemic when prices started to
shoot up, first as a result of supply chain issues built up and
then because of Russia’s full-scale invasion of Ukraine which
pushed up energy costs.
The ECB, which was created in 1999 when the euro currency was
born, started raising interest rates in the summer of 2021,
taking them up to a r ecord high of 4% in Sept. 2023 to get a
grip on inflation by making it more expensive for businesses and
consumers to borrow, but that has come at a cost by weighing on
growth.
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