New Forecast Becomes Crucial Turning Point
The decision-makers of the European Central Bank are awaiting a new round of economic forecasts to be released in December to determine if the current interest rate is sufficient to support the 2% inflation target. Although maintaining the interest rate in September was seen as a "good policy state," internal disagreements are becoming apparent, with intensified discussions on whether the rate cut cycle has ended.
Some Officials Emphasize Patience
Several members, including the central bank governors of Latvia and Greece, believe that the current interest rate level is quite appropriate, and there is no need to rush into further adjustments. They advocate for monetary policy stability rather than frequent actions in response to short-term inflation fluctuations. Some officials pointed out that although the forecast suggests inflation in 2028 might be slightly below target, it is not sufficient to trigger a new round of easing immediately.
Voices Favoring Easing Persist
Meanwhile, other members insist that from a risk management perspective, preventive measures should continue. Lithuanian Central Bank Governor Simkus emphasized that if forecasts confirm inflation is significantly below target in the long term, a rate cut should be considered in December. He mentioned that external factors such as the strengthening euro, impacts from Chinese imports, and uncertainties in the carbon trading system might keep prices under long-term pressure. Portuguese Central Bank Governor Centeno stated that tolerating temporarily below-target inflation is acceptable, but if it persists long-term, it could undermine market confidence, thus not ruling out the necessity for further easing.
The Delicate Balance Between Inflation and Growth
Although the current inflation rate is close to the target, European economic growth has not returned to its potential level. Some officials believe that future growth relies more on domestic demand, which amplifies the role of monetary policy. However, uncertainties in fiscal spending and external trade frictions could still impact economic trends.
Market Expectations Gradually Converge
Following the European Central Bank's decision to keep the interest rate unchanged, the market's bets on further rate cuts have cooled. Investors' focus has shifted to the December forecast, which will for the first time include data for 2028. If medium-term inflation is significantly below target, the market may readjust its expectations for monetary policy.
Intriguing Policy Signals
In a recent speech, President Lagarde mentioned that the European Central Bank has achieved phased results in curbing prices, but global uncertainties persist. She did not explicitly rule out the possibility of further adjustments but emphasized that policy remains data-dependent. Analysts believe this statement leaves ample flexibility for the December meeting.
Looking Ahead
Looking ahead, it is foreseeable that the European Central Bank will face difficult decisions in the coming months. If the inflation outlook remains around 2%, maintaining interest rate stability will be the most likely choice; however, if the new forecast confirms prolonged low inflation, easing pressures will intensify once again. Regardless of the final outcome, the economic forecast in December will undoubtedly be a significant signal for determining whether the European Central Bank's rate-cutting cycle has truly ended.
