The size of the rate cuts expected from the European Central Bank (ECB) haven’t changed, but the bank is now forecast to accelerate those moves, says Fitch Ratings.
The rating agency said that, while the ECB is still expected to reduce rates by a total of 200 basis points in the current rate-easing cycle, which began in June, the pace of those rate cuts could speed up.
The ECB cut rates by 25 basis points last week, and Fitch now expects another 25-basis-point cut in December, followed by 100 basis points of easing in 2025, which would take rates to a neutral policy level of 2.0% by the end of next year.
Even so, “rates will remain in restrictive territory through most of 2025 reflecting still-high wage and services price inflation,” Fitch said.
While headline inflation has dropped faster than expected — falling to 1.7% in September driven by declining energy prices — services inflation has only just started to cool and is still at 3.9%, it noted.
“Past monetary tightening is clearly still affecting the economy,” Fitch said. “The ECB appears concerned that eurozone economic growth will undershoot its September forecasts, putting more downside pressure on inflation when it already is close to target.”
“Although unemployment has yet to rise, labour markets are cooling and wage pressures subsiding,” it said.