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ECB to quicken rate cuts pace compared to Sep forecasts: Fitch Ratings

28 Oct '24

2 min read

ECB to quicken rate cuts pace compared to Sep forecasts: Fitch Ratings

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Fitch Ratings expects the European Central Bank to quicken the pace of interest rate cuts compared to its September Global Economic Outlook forecasts.
But it still expects rates will fall by 200 bps in the current policy easing cycle that began in June to 2 per cent by 2025-end.
Rates will be in restrictive territory throughout most of 2025 reflecting still high wage and services price inflation.

Fitch Ratings expects the European Central Bank (ECB) to quicken the pace of interest rate cuts compared to its forecasts in the September Global Economic Outlook. But it still expects rates will fall by a total of 200 basis points (bps) in the current policy easing cycle that commenced in June to 2 per cent by end of 2025.

ECB cut its set of policy rates on 17 October by 25 bps, lowering the deposit rate to 3.25 per cent. Fitch expects a further 25-bps cut at December’s governing council meeting and quarterly 25-bps cuts throughout 2025 for a total of 100 bps for the year, the rating agency said in a release.

Nevertheless, rates will remain in restrictive territory throughout most of 2025 reflecting still high wage and services price inflation. Fitch sees 2 per cent as a neutral policy rate for the eurozone and the likely end-point for rates in this cycle.

Headline inflation has declined more swiftly than the ECB expected to just 1.7 per cent in September, helped by falling energy prices. Fitch expects it to accelerate over the coming quarter on energy price base effects.

Core inflation fell to 2.7 per cent in the eurozone. Although unemployment has yet to rise, labour markets are cooling and wage pressures subsiding.

Past monetary tightening is clearly still affecting the economy and ECB appears concerned that eurozone economic growth will undershoot its September forecasts, putting more downside pressure on inflation when it already close to target, the rating agency added.

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