ECB Rate Cut Impact Analysis: Inflation Concerns Forward, Policy Tightening Ahead

A bit of a different take on the ECB rate cut. In a recent note, PIMCO highlighted that while the European macroeconomic outlook is softer than anticipated, risk management continues to drive central bank decisions.

• The analysts suggested that any unexpected inflationary pressures could lead the European Central Bank (ECB) to slow the pace of future rate cuts, although last Thursday’s reduction provides a safeguard against downside risks.
• Despite persistent inflation, largely fueled by price pressures in the services sector, PIMCO expects the ECB to maintain a tight monetary policy stance for the time being.
• The firm emphasized that upcoming economic data will be crucial in determining how quickly the ECB eases its restrictive policies.
• PIMCO also anticipates that the ECB’s Governing Council will engage in discussions about the appropriate neutral policy rate next year, particularly once the rate falls below 3%.
• The firm believes that another rate cut is likely in December, and views market pricing for a terminal rate of around 1.85% in the second half of 2024 as reasonable.

European Central Bank President Lagarde

This article was written by Eamonn Sheridan at www.forexlive.com.