ECB Is Poised to Lower Interest Rates despite Inflation Pressures in Euro Zone

The European Central Bank (ECB) is expected to announce an interest rate cut at its upcoming meeting in Frankfurt on Thursday, even as inflationary pressures persist in the 20-nation euro zone.

Money markets have already factored in a 25 basis point decrease at the June 6th gathering, making any other outcome a potential surprise.

Currently standing at a historic 4% since September 2023, the central bank’s key rate could see its first reduction since September 2019, when the deposit facility was in negative territory. While markets are pricing in only one more cut for the year, economists surveyed by Reuters predict a total of two cuts occurring over the period.

Investors will closely watch for indications from the Governing Council’s statement and ECB President Christine Lagarde’s remarks during her press conference scheduled for 2:45 p.m. Frankfurt time. Of particular interest will be the ECB staff’s fresh quarterly economic growth and inflation projections.

Despite initially raising interest rates later than other central banks, a potential June rate cut would position the ECB ahead of the U.S. Federal Reserve in its trajectory downwards. The Fed has faced challenges due to U.S. inflation levels. Lagarde emphasized during a previous press conference that ECB decisions are guided by data rather than being influenced by the Fed.

Canada recently became the first G7 nation to reduce interest rates in the current cycle, following rate cuts by central banks in Sweden and Switzerland earlier this year.