Last Thursday (October 17th), official data showed that the eurozone's inflation rate in September had fallen to 1.7%, prompting the European Central Bank (ECB) to subsequently announce a further reduction in interest rates by 0.25 percentage points. This marks the ECB's third rate cut this year and the first time in over three years that the eurozone's inflation rate has fallen below the ECB's 2% target.
Following the rate cut last week, the ECB's next policy direction is attracting attention. On Monday local time, ECB Governing Council member and Governor of the Bank of Lithuania, Gediminas Simkus, stated that if the trend of cooling European inflation can continue, European borrowing costs will further decrease. However, he could not make judgments about the ECB's policy decisions at the next meeting.
"The direction is very clear—monetary policy easing," Gediminas Simkus said, "I cannot yet clearly say what the decision will be at the December meeting. But the direction is very clear—interest rate cuts."
It is evident that market investors also agree with his view. Currently, investors expect that due to the current European inflation rate already being below the 2% target and the economic growth of the eurozone's 20 countries having almost stagnated, the ECB will significantly cut interest rates at future meetings. According to informed sources, the ECB is likely to take action in December.
Simkus stated that ECB policymakers will have a clearer understanding of European economic trends in two months.
He told reporters, "In December, we will have more hard data: GDP, inflation, PMI, and new forecasts... All of these will provide more data on the pace of inflation trends—whether it is moving faster or slower?"
Meanwhile, Latvian Central Bank Governor Martins Kazaks stated that as European inflation slows to 2%, interest rates will continue to decline.
However, he believes that Europe's 2% inflation target may be achieved earlier than previously expected.
Martins Kazaks said in an article, "If Europe's inflation in the past few months has been lower than expected, it is important to see whether inflation in the coming months will also be significantly lower than expected... If this is indeed the case, we may reach the 2% inflation target in a sustainable manner before the end of next year."
He reiterated concerns about the European job market, stating that the widespread layoffs in European companies may cause European inflation to be "far below the target." However, the ECB's base forecast scenario remains that Europe can achieve a soft landing without a significant increase in unemployment.
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