Will The ECB Keep Rates On Hold?

October 25, 2023 22:29

The European Central Bank’s (ECB) governing board meeting on Thursday draws investors’ attention as interest rates are going to be the main discussion topic. Market analysts will also expect to scrutinise the US GDP preliminary data for the third quarter of the year and evaluate how the largest economy in the world has performed.

Australia’s headline inflation for the third quarter came in at 5.4%, slightly higher than economists’ forecast but still lower than the 6% reading recorded in the second quarter. On a quarterly basis, Australia’s CPI rose by 1.2%, higher than anticipated with the Australian dollar strengthening as some analysts raised the possibility of a new rate hike by the Reserve Bank of Australia (RBA).

ECB Interest Rate Decision

The moment of truth for the ECB has come, as it is scheduled to announce its interest rate decision tomorrow. Economists suggest that the eurozone’s central bank wouldn’t increase its borrowing costs as the bloc’s economy seems to be slowing down. 

Commerzbank’s analysts suggested in a report that recession signs increase noting: “The ECB is likely to revise its economic outlook further downwards. In its September projections, it still assumed that the Euro area economy would avoid a recession. A further increase in the key interest rate is thus becoming increasingly unlikely.”

ING’s economists seem to agree according to their latest report that says “ECB’s September meeting had already given clear indications that the October meeting would be an intermediate one, waiting for new information from the Bank Lending Survey, GDP growth in the third quarter and a new round of staff projections. We expect the ECB to keep rates on hold next week and to basically stick to a hawkish bias, keeping the door open to yet another rate hike in December.”

A survey by S&P Global revealed that the eurozone’s private sector performance dropped to the lowest level recorded in the last 36 months indicating a weakening demand environment.

US GDP Q3 2023 Preliminary Report

A bit later on Thursday and as markets will be digesting the ECB rate decision, the US Bureau of Economic Analysis (BEA) will release its preliminary GDP report for the third quarter of the year. Some analysts suggest that the US GDP grew by 4.2% on an annualised basis, almost double the second quarter’s figure.

Commenting on the upcoming GDP report, analysts at MUFG Bank said that a figure close to 5% could trigger a move upwards when it comes to yields and the US dollar. Their report noted that “Q3 GDP from the US will be released this week and the rate of growth is expected to accelerate from the 2.1% QoQ SAAR in Q2 to 4.1% in Q3. With a notable slowdown in GDP growth expected in Q4, a figure closer to 5.0% would likely be needed to prompt a notable move higher for yields and the Dollar.”

Tokyo CPI October Report

The Japanese Statistics Bureau will publish the Tokyo CPI inflation report for the month of October on Thursday night. The September report had shown inflation coming in at 2.8%, significantly higher than the Bank of Japan (BoJ) target of 2%.

ING analysts suggest that the figure could drop to 2.6% in October but expressed fears that the weak Japanese yen and rising energy prices could give inflation readings a boost.

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This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Please note that such trading analysis is not a reliable indicator for any current or future performance, as circumstances may change over time. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.

Miltos Skemperis
Miltos Skemperis Financial Content Writer

Miltos Skemperis’ background is in journalism and business management. He has worked as a reporter on various TV news channels and newspapers. Miltos has been working as a financial content writer for the last seven years.