Cautiously cut interest rates.

The European Central Bank (ECB) will cut interest rates this year as evidence suggests a stable inflation outlook is in line with its 2% target. This was confirmed by ECB policymaker Francois Villeroy de Galhau.

The euro symbol is displayed in front of the European Central Bank (ECB) headquarters in Frankfurt, Germany. Photo: AFP/VNA

In October 2023, the ECB decided to keep interest rates unchanged, ending a streak of 10 consecutive increases totaling 4.5% since July 2022 to combat peak inflation of 10.6%. Economists predict the ECB will implement a total of 1.46% interest rate cuts in 2024, with the first cut of 0.5% likely in March.

According to Daniel Morris, head of market strategy at BNP Paribas' asset assessment division, it would be more logical for the ECB to cut interest rates before the US Federal Reserve (FED) does the same, given that the Eurozone economy is weaker than the US economy. US economic growth remains strong, and the FED has the capacity to wait for further signs of slowing inflation. The first 0.25% interest rate cut by the US is planned for May, and the FED may implement six more cuts throughout 2024, bringing the benchmark interest rate to 3.75%-4%, from the current 5.25%-5.5%.

In the final weeks of 2023, investors believed that central banks on both sides of the Atlantic would implement rapid interest rate cuts this year, fueling the largest two-month global bond rally in several years. However, the extent and duration of these rate cuts depend on several factors. In the Eurozone, inflation rose from 2.4% in November 2023 to 2.9% in December 2023.

In the US, inflation is showing signs of rising again, with the consumer price index increasing by 0.2% in December 2023 compared to the previous month and by 3.2% compared to the same period in 2022. Furthermore, Craig Inches, head of interest rates at Royal London Asset Management, argues that increasing inflationary pressure due to tensions in the Middle East is one of the unpredictable factors for central banks, with virtually no one able to predict the risk of a global recession. In that case, interest rate cuts would be reconsidered.

KHANH MINH

Source: https://www.sggp.org.vn/than-trong-cat-giam-lai-suat-post722327.html