The European Central Bank (ECB) has cut interest rates for the second time this year, bringing them down to 3.5% following recent inflation data showing price rises had dropped across the Eurozone to 2.2% in August, down from 2.6% in July.
However, the ECB’s job may not be as straightforward at future meetings, with Des Lawrence, senior investment strategist at State Street Global Investors, noting some signals, such as services inflation rising to 4.2% in August, were more mixed.
Lawrence said: “The concurrent rise in services inflation to 4.2% in August raises a dilemma for the ECB: how to avoid over-promising on policy moderation and yet respond to legitimate concerns around a slowdown in activity that's gathering pace and breadth.”
Janet Mui, head of market analysis at wealth manager RBC Brewin Dolphin, was less concerned, noting that “markets continue to price in close to two more rate cuts by the end of the year and a further four cuts in 2025”.
The move was broadly expected by the market and is in-line with expectations for both the Bank of England and Federal Reserve who are forecast to make similar moves next week.
Lindsey James, investment strategist at Quilter Investors, said: “Given it is faced with an economy in desperate need of some form of stimulus, the ECB will be hoping this second quarter-point rate cut will begin to make easier financial conditions felt.”
“All eyes will now turn to the Federal Reserve and the Bank of England to see if they follow suit with rate cuts of their own next week.”