ECB Prepares to Cut Interest Rates Again and Signal a More Dovish Stance

Forex - The European Central Bank (ECB) is preparing for another interest rate cut, which could signal future cuts more strongly during a time when the political chaos in Europe's two largest economies has overshadowed an already bleak economic outlook.

The ECB is expected to lower its key deposit facility rate by a quarter point to 3% for the fourth time this year. Additionally, many anticipate that President Christine Lagarde will change her messaging to bolster confidence in next year's rate cuts aimed at preventing the Eurozone from slipping into stagnation due to the political drift in Germany and the political gridlock in France. The central bank may be willing to cut rates as inflation has become less concerning: the rise of inflation to 2.3% in November did not alter the prevailing view that the battle against it is being won in Frankfurt.

This view is likely to be reaffirmed today with the ECB staff's new macroeconomic forecasts. In September, the bank's economists stated that they expected inflation to average 2.2% in 2025 and 1.9% in 2026, with growth anticipated to rise to 1.3% next year. Carsten Brzeski from ING remarked that the new forecasts "will be very similar to what we saw in September, and based on those forecasts, a larger cut would not be justified."