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02.10.2024

ECB should continue to ease monetary policy, given current economic conditions - ECB policymaker

Martins Kazaks, the European Central Bank Governing Council member and Latvia's central bank governor, said that given that the eurozone economy may face a tipping point, the Central Bank should continue easing monetary policy at its next meeting, which will be held on October 17.

Overall, the latest data on inflation and economic growth, as well as comments from ECB policymakers, have significantly increased the likelihood of another ECB rate cut this month. Yesterday, a report from Eurostat showed that the eurozone annual inflation slowed sharply in August, falling below the ECB's target level (2%) for the first time since mid-2021 and reaching its lowest level since April 2021. Meanwhile, core inflation unexpectedly fell to its lowest level since April. According to the report, the consumer price index rose by 1.8% per year after increasing by 2.2% per year in August. Economists had expected growth of 1.9% per annum. Meanwhile, on a monthly basis, the consumer price index declined by 0.1% after rising by 0.1% in August.

Martins Kazaks also noted that wage growth slowed, profit margins declined, and economic recovery remained elusive in much of the eurozone. "I fully agree with the market pricing regarding the outcome of the October ECB meeting. In my opinion, risks to growth are important and need to be addressed," Kazaks said, adding that eurozone companies may start cutting staff amid weak economic prospects, which will lead to a further slowdown in economic growth.

Kazaks also reported that even after the reduction of the ECB deposit rate by 0.25%, it will remain at a level limiting economic activity, which should help reduce inflation in the service sector.

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