ECB Minutes Show Policymakers Saw Room For More Easing

RTTNews | 22 days ago
ECB Minutes Show Policymakers Saw Room For More Easing

(RTTNews) - European Central Bank policymakers were looking forward to more interest rate cuts, but they saw the need for a cautious approach due to several uncertainties that could derail inflation from its path to the 2 percent target, the minutes of the December 11-12 policy session showed on Thursday.

In December, the Governing Council, led by ECB President Christine Lagarde, lowered the key interest rates by 25 basis points for a third time, thus taking the deposit rate to 3.00 percent, and signaled more easing in January depending on the developments on the inflation front.

Rate-setters agreed that "a measured pace of interest rate cuts was consistent with the general notion that more "check points" had to be passed to ascertain whether disinflation remained on track and kept open the optionality to make adjustments along the way," the minutes that the ECB calls "account" showed.

"This cautious approach was still warranted in view of the prevailing uncertainties and the existence of a number of factors that could hamper a rapid decline in inflation to target," the minutes said.

ECB policymakers agreed that a gradual dialing-back of policy restrictiveness was seen as appropriate, if the baseline projection for inflation was confirmed over the next few months and quarters.

Eurozone inflation accelerated for the third straight month in December to 2.4 percent. However, core inflation held steady at 2.7 percent.

The easing bias among ECB policymakers was clear as the minutes showed that some saw the scope for a 50-basis points reduction in December given the deterioration in the euro area growth outlook.

However, this proposal was countered with the view that a 50-basis point cut could be perceived as the ECB having a more negative view of the state of the economy than was actually the case and that was not desirable unless warranted by additional negative shocks.

The ECB staff had lowered their growth projections in December and projected euro area growth at 1.1 percent next year, 1.4 percent in 2026 and 1.3 percent in 2027.

The next ECB policy announcement is scheduled for January 30 and the bank is widely expected to lower rates by a quarter-basis points again.

"At 3 percent, the deposit interest rate is still restrictive and too restrictive for the current weak state of the eurozone economy," ING economist Carsten Brzeski said.

"While the experience of being slow to address rising inflation will deter the ECB from adopting ultra-low rates, the desire to stay ahead of the curve remains a compelling reason to return interest rates to neutral as swiftly as possible," the economist added.

Cutting rates will become unavoidable for the ECB if the euro area economic situation weakens more than what was projected in December, Brzeski said. The ECB forecasts had used a terminal rate of below 2 percent, the economist pointed out.

A weaker economy is set to be the top concern for ECB policymakers this month. Data released on Wednesday showed that the German economy, the biggest in the euro bloc, remained stuck in a recession last year.

The preliminary estimates for the fourth quarter euro area GDP are set to be released just hours ahead of the ECB policy announcement on January 30.

read more
German Construction Sector Continues To Shrink

German Construction Sector Continues To Shrink

Germany's construction sector remained firmly in contraction but the pace of fall softened in January, survey data from S&P Global revealed Thursday. The HCOB construction Purchasing Managers' Index rose to 42.5 in January from 37.8 in December. Although the score was firmly below the neutral 50.0 that separates growth from contraction, the reading was the highest since May 2023.
RTTNews | 1 day ago
German Factory Orders Rebound In December

German Factory Orders Rebound In December

Germany's factory orders rebounded at a much stronger than expected pace in December largely driven by the manufacture of transport equipment. New orders increased 6.9 percent month-on-month in December, reversing a revised 5.2 percent fall in November, Destatis reported Thursday. Orders were forecast to grow only 1.9 percent.
RTTNews | 2 days ago
Eurozone Private Sector Expands For First Time In Five Months

Eurozone Private Sector Expands For First Time In Five Months

Eurozone private sector expanded for the first time in five months in January as factory production showed a slower decline amid a softer growth in services activity, final survey results from S&P Global showed on Wednesday. The HCOB composite output index rose to 50.2 in January, in line with flash estimate, from 49.6 in December.
RTTNews | 2 days ago
Spain Unemployment Rises Less Than Forecast

Spain Unemployment Rises Less Than Forecast

Spain's unemployment increased less than expected in January and also hit the lowest level for the month in 17 years as the economy continued to exhibit robust growth, official data showed on Tuesday. The number of people out of work increased 38,725 in January from the previous month, the labor ministry said.
RTTNews | 3 days ago
Eurozone Inflation Rises Modestly In January

Eurozone Inflation Rises Modestly In January

Eurozone inflation edged up in January due to the acceleration in energy price growth but the intended easing path of the European Central Bank is unlikely to be influenced by the modest increase. Inflation in the euro area increased to 2.5 percent in January, while it was expected to remain at December's rate of 2.4 percent.
RTTNews | 4 days ago
Eurozone Manufacturing Activity Falls At Slowest Pace In 8 Months

Eurozone Manufacturing Activity Falls At Slowest Pace In 8 Months

The euro area manufacturing sector shrank at a slower pace in January as contractions in output, orders, inventories and purchasing activity slowed, final survey results from S&P Global showed on Monday. The final HCOB manufacturing Purchasing Managers' Index rose to an eight-month high of 46.6 in January from 45.1 in December. The flash reading was 46.1.
RTTNews | 4 days ago
German Inflation Unexpectedly Eases In January

German Inflation Unexpectedly Eases In January

Consumer price pressures in Germany slowed unexpected at the start of the year amid a sharp slowdown in food inflation, offering some relief for the European Central Bank that lowered interest rates a day earlier and plan to continue easing to boost the single currency economy that came to a standstill in the final three months of 2024.
RTTNews | 7 days ago
ECB Surveys Show Rising Eurozone Inflation Expectations

ECB Surveys Show Rising Eurozone Inflation Expectations

Euro area consumers' inflation expectations for the next 12 months increased for a third straight month in December, while professional forecasters revised up the projections for this year and next, separate surveys by the European Central Bank showed on Friday.
RTTNews | 7 days ago