Frankfurt will receive the members of the governing council of the European Central Bank (ECB) with zero degrees of temperature this Thursday, December 12. The economic and political situation, with the German economy stagnant and the extreme right and other anti-system formations willing to take advantage of any vote of disappointment or discontent, pressures in favor of a strong rate reduction that, on the other hand, is not justified by the inflation data. . And this will be the last meeting of the governing council before Donald Trump takes office as the US Presidency, and announces his feared tariffs, another bucket of cold water on a faltering Europe. That is why we are hearing speeches that pull towards one side or the other of the interest rate rope. The German member of the council, Isabel Schnabel, is in favor of resisting and relaxing monetary policy only gradually. “Given the inflation outlook, I believe we can gradually move towards neutrality if incoming data continues to confirm our baseline,” he said, referring to a level of interest rates that neither stimulates nor slows growth, adding: «I would warn against going too far, that is, into accommodative territory. “I don’t think it’s appropriate from today’s perspective.” Related News standard Yes German industry suffers: orders fall 1.5% compared to the previous month Rosalía Sánchez | Correspondent in BerlinThe director of the Austrian National Bank (OeNB) and also a member of the ECB board, Robert Holzmann, is on neutral territory, clinging to the data. «We still do not have the forecasts or the definitive data, we will receive them in December. The decision will be made on this basis. As it currently appears, the possibility exists, there is nothing at the moment that opposes it, but it does not mean that it will happen automatically,” he avoided getting wet. The president of the ECB, Christine Lagarde, however, has repeated in several statements that she considers that the inflation target will be achieved sustainably over the next year, which speaks of conditions to face a more confident rate cut, from 0, 50%, as the fourth step of the process that began in June. All options are therefore still open, but the truth is that the markets do not expect the ECB to reduce its key interest rate this Thursday beyond another 0, 25 percentage points, up to 3.00%, in line with the strategy of steering inflation towards its 2% target amid weaker economic growth in the euro area. “From a risk management point of view, with a still restrictive level of 3%, any upward impact on inflation can be addressed by a slower pace of rate cuts in the future, while cutting rates “It offers additional protection against downside risks,” warns Konstantin Veit, portfolio manager at PIMCO, adding: “We believe that the new projections will likely show inflation around the target from mid-2025 onwards. However, For inflation to evolve in line with the ECB’s expectations and to converge durably towards the target in 2025, the most important prerequisite remains for the growth of unit labor costs to return to levels broadly compatible with inflation of 2 %».All options remain open, but markets do not expect a drop of more than 0.25 percentage points«Despite a rise in inflation readings in recent months, no one expects the ECB to pause or change course in its rate cut efforts,” advances Michael Field, European equity strategist at Morningstar. And all the economists surveyed by Reuters are of the same opinion. «Inflation in the eurozone is 2.3%, slightly above the ECB’s target of 2%. “We have come a long way and, although wages are still recovering, the recent rise in services inflation is likely to be temporary,” says Field. However, the debate on the scope of this Thursday’s rate cut remains open. François Villeroy de Galhau, governor of the Banque de France, has stressed for his part that the door should remain open to a cut greater than 0.5 percentage points this December 12 and has stressed that the ECB must remain “proactive and flexible » in achieving its monetary policy objectives. Course for 2025 Beyond what happens at the meeting, analysts wonder about the direction that the rate reduction will take throughout 2025 and They eagerly await any clue Lagarde offers in her press conference on Thursday. Risks remain in Europe, and potential US tariffs will be high on the list again. Economists polled by Reuters expect another 1 percentage point rate cut in 2025, which would bring deposit rates closer to 2% and give the economy a welcome respite, Field says. Some even believe the deposit rate could fall to 1.50% by the end of 2025. Carsten Roemheld, capital markets strategist at Fidelity International, expects six additional cuts of 0.25 percentage points each in 2025 and estimates that ” “We assume that the ECB will continuously cut interest rates at each meeting in the first three quarters of 2025.” He agrees with Ulrike Kastens, Europe expert at the DWS, in his forecast. “Although the economic outlook has deteriorated while inflation has performed slightly better than expected, we do not believe this implies an urgent need for a significant rate cut in December,” he says. The winter that the European economy is going through, on the other hand, will be evident in the reduction of its GDP forecast, which the ECB will make public after this meeting, and the business mood, on the floor since Trump’s electoral victory.
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