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The possibility of the ECB's last rate cut later this year remains
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Hello everyone, today XM Forex will bring you "[XM Forex Platform]: The possibility of the last rate cut by the European Central Bank later this year still exists." Hope it will be helpful to you! The original content is as follows:
Although the debate between the two factions that advocate maintaining current interest rates and supporting interest rate cuts may be more intense than market expectations, the European Central Bank (ECB) will keep interest rates unchanged at next week's meeting.
As several ECB officials made quite tough remarks after ending their summer vacation, the ECB will keep interest rates from becoming a market consensus at next week's meeting, and previous forecasts have to change. However, it may still be possible to hold that the possibility of rate cuts next week or later this year should not be ruled out entirely.
Reasons to maintain current interest rates
Minutes of July meetings and public statements by ECB officials after the end of summer vacations all stressed that the threshold for the central bank to cut interest rates again has been set at a high level.
At least on the surface, the many positive progresses that emerged in the summer have further consolidated the "wait and see" position:
Although the trade agreement reached by the United States and Europe is not perfect, "the situation may have been worse", which has alleviated trade uncertainty to a certain extent;
The GDP growth data in the second quarter of the euro zone is still acceptable;
The corporate confidence indicators continue to improve.
These factors not only did not weaken the rationality of maintaining interest rates in September, but instead made them more convincing. The last argument that hawks (the camp that advocates maintaining or raising interest rates to curb inflation) will be the slight rebound in overall inflation in August.
Basics for supporting another rate cut
However, at the same time, the minutes of the July meeting also showed that at least some ECB members had previously (and likely remained) worried that inflation might be below the target level. EU economyCommissioner Olli Rehn's statement in an interview also proves that this view and concerns supporting the rate cut have not disappeared in the summer. In fact, the following reasons are enough to support this concern:
Uncertainty of the trade agreement: Eurozone policymakers are generally becoming clear that the U.S.-European trade framework agreement is not a foregone conclusion. The conditional clauses attached to multiple aspects of the agreement leave enough room for possible new frictions in the future.
Downward pressure on economic forecasts: Judging from the changes in the "technical assumptions" (i.e. interest rates and exchange rates), the new round of economic forecasts of the ECB is likely to slightly lower the inflation rate and economic growth forecasts in 2026.
Spillover Effect of Federal Reserve Policy: Although the ECB strongly denies responding to monetary policies in other countries, if the Fed initiates a round of aggressive interest rate cuts, it may lead to further appreciation of the euro, which in turn increases the risk of inflation below target.
Potential Impact of the Situation in France
The French Parliament will hold a vote of confidence before the European Central Bank meeting next week. It is obvious that France's recent economic and political dynamics may also become a concern for the European Central Bank. This impact is not reflected in the interest rate decision itself, but the possible support from the European Central Bank if French government bond yields soar.
Consequently, this ECB press conference may be more subtle than ever. President Christine Lagarde needs to avoid repeating the mistakes in 2020, when she expressed doubts about her determination to stabilize the market "at all costs", triggering market volatility; at the same time, she must emphasize that the ECB's support is not taken for granted. In fact, Lagarde needs to be clear: The "Conduction Protection Tool" (TPI) will be activated only if member states are in earnest in www.xmniubi.compliance with EU fiscal rules, or at least when following the established adjustment path - and France does not meet this condition at present.
Of course, the ECB also has some flexibility: it points out in the relevant TPI documents that "these standards will serve as reference for the management www.xmniubi.committee's decisions and will be dynamically adjusted based on changing risks and situations that need to be dealt with." But even so, the European Central Bank is unlikely to "open up" France in advance. Nearly 10 years ago, when asked why France gained more flexibility in abiding by fiscal rules, then-EU www.xmniubi.commission President Jean-Claude Juncker replied: "Just because it is France." And on the TPI issue, we are unlikely to see Lagarde make a similar statement.
The possibility of a last rate cut will not be ruled out later this year
Abstract, the discussion at the ECB meeting next week is likely to be more controversial than the current market expects. Next week’s meeting will be a great example of central bank observers’ understanding of the need to distinguish between what central bank should and what will be done.
Although the ECB cuts interest rates again will becomeA preventive measure can prevent the euro from being unnecessarily appreciated and inflation below the target, but most members of the European Central Bank do not agree with this view, but instead emphasize the resilience shown by the economy and recent hard data (such as GDP, inflation and other data that directly reflect the economic situation).
At present, the ECB seems reluctant to leave its "comfort zone", but the possibility of a rate cut later this year cannot be ruled out.
The above content is all about "[XM Forex Platform]: The possibility of the last interest rate cut by the European Central Bank later this year still exists". It was carefully www.xmniubi.compiled and edited by the editor of XM Forex. I hope it will be helpful to your transactions! Thanks for the support!
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