Declining Inflation in France and Spain Sparks Calls for ECB Rate Cut
Recent data indicates a significant decline in inflation rates in France and Spain, drawing the attention of economists in Germany who are advocating for a new interest rate cut by the European Central Bank (ECB). According to a report from the German newspaper Handelsblatt, Spain's preliminary inflation figure for September is set at 1.8%, a notable decrease from the 2.3% recorded in August. This marks four consecutive months of decline in the Consumer Price Index (CPI), now at its lowest point in three and a half years, specifically since March 2021, when it was at 1.3%. As a result, the inflation rate in Spain has now dropped below the 2% threshold, which is critical for the ECB's monetary policy considerations.
France has mirrored this trend, with its inflation rate decreasing from 2.2% to 1.5% over the past few months. Many economists had anticipated a decline in inflation across the European Union (EU), primarily due to lower energy prices; however, the extent of these reductions has taken many by surprise. Analysts suggest that these pronounced declines could significantly influence the ECB's forthcoming monetary decisions.
Goldman Sachs, a major American bank, has pointed out that the ECB may need to expedite its plans for a rate cut, proposing that the timeline be moved up from December to October. There is growing speculation that this adjustment could indeed take place.
The ECB had previously approved a rate cut of 25 basis points two weeks ago, marking the second such reduction this year. Following this decision, the deposit facility reference rate now stands at 3.5%. Meanwhile, the interest rates for main refinancing operations and the marginal credit rate have been adjusted downward to 3.65% and 3.90%, respectively, representing a technical adjustment that reduces both rates by an additional 35 basis points.
As the economic landscape shifts with these changes in inflation rates, the focus now turns to how the ECB will respond in terms of interest rate policies, and whether a further rate cut will be realized sooner than anticipated.
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