The ECB is set to cut its key rate next week – Commerzbank

The general market consensus is that the ECB will cut its key interest rate next week, and this is also the view of our ECB analysts. The problem with the ECB is that the reason for the October rate cut necessitates a fundamental review of the ECB’s interest rate path, notes Ulrich Leuchtmann, head of FX and Commodity Research at Commerzbank.

The ECB has good reasons for loose monetary policy

“Now that reason is obviously the collapse of inflationary expectations in the Eurozone. From a market perspective, the ECB therefore has good reasons for a loose monetary policy. Low inflation is good for the euro (as its domestic purchasing power erodes more slowly), low interest rates are negative.”

“The combination is therefore negative for the euro as a whole, as the downward revision of inflation expectations makes it more likely that we will see a relapse of ‘low inflation’ in Europe, with the ECB having to set its interest rate as low as possible from the point of view of technically, without inflation. raising.”