The Danger of Premature ECB Rate Cuts
By embarking on a new cycle of interest-rate cuts now, the European Central Bank appears to be relying too heavily on flawed forecasts and ignoring economic and geopolitical realities. Faced with the risk of either cutting interest rates prematurely or maintaining an overly restrictive monetary policy, the ECB has not chosen wisely.
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FRANKFURT – With inflation in the eurozone dropping from a peak of 10.6% in October 2022 to 2.6% in May 2024, the European Central Bank is optimistic that inflationary pressures will continue to ease. Its March projections show inflation averaging 2.3% in 2024, before falling to 2% in 2025 and 1.9% in 2026. Thus, the ECB is expected to cut its key policy rate, the deposit facility rate, from 4% to around 3.75% on June 6.