ECB To Decide On Rates, UK CPI Inflation Hits 3-Year Low

The European Central Bank’s decision on interest rates and monetary policy will draw the attention of investors and traders for the rest of this week. Economists forecast a 25 basis points cut on the back of lowering inflation figures recorded in the euro bloc.

In other news, UK’s inflation fell under the BoE’s 2% target for the first time after April 2021, with market analysts suggesting that we could see the UK’s central bank lowering borrowing costs in November.

ECB Interest Rate Decision

ECB’s policymakers will convene to decide on interest rates tomorrow afternoon. Market analysts suggest that lowering borrowing costs by 25 basis points is the most probable option for the eurozone’s governing board. If the ECB reduces borrowing costs, it will be the third rate cut of the year, following similar moves in June and September.

ING economists forecast a rate cut at Thursday’s meeting. In their report released on October 15th, they said: “A slate of weaker survey data and a cooler September CPI prompted officials at the European Central Bank to open the door to a cut in October. Markets took the hint and have since firmly priced in an October cut as the base case. In fact, markets firmly see at least four back-to-back 25bp cuts as the baseline scenario at the moment. Our economists believe that the ECB will find enough reason to cut this week and not disrupt markets.” The Dutch bank’s economists suggest that a December follow up cannot be taken for granted.

UK Inflation Drops More Than Expected

A report by the ONS showed that UK CPI inflation in September fell more than expected to 1.7% on a year-to-year basis. Core inflation dropped to 3.2% below the 3.4% forecast of a Reuters poll. The BoE’s headline inflation target remains at 2%.

As inflation figures slid more than anticipated, economists suggested that the probability of a rate reduction in the upcoming BoE monetary policy meeting has increased. Economists at PwC told The Guardian: “Headline CPI inflation came in at 1.7% in September, dropping below the Bank of England’s target for the first time in three years, and adding to calls for another rate cut in November. This was mainly driven by downward contributions from motor fuels and air fares. Overall, this suggests we are very much at the end of the disinflationary process, which will be welcome news for policymakers and of course, consumers and businesses.”

New Zealand CPI Inflation Falls In Q3 2024

New Zealand’s CPI inflation fell to 2.2% in the third quarter of 2024 on an annualised basis in line with analysts’ expectations. It should be noted that CPI inflation in the previous quarter had come in at 3.3%. Statistics NZ analysts noted that “for the first time since March 2021, annual inflation is within the Reserve Bank of New Zealand’s (RBNZ) target range of 1% to 3%. Prices are still increasing but at a slower rate than before.”

Kiwibank economists said that the Reserve Bank of New Zealand (RBNZ) could declare victory in the war on inflation, adding that “the light at the end of the tunnel is burning brighter. Cost pressures are easing. Policy settings are still restrictive, but more interest rate cuts are coming." ASB analysts forecast the central bank cutting rates by 50 basis points at its final 2024 meeting in November.

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