The ECB is now in a “rush” to lower interest rates, say analysts who see signs of a “remarkable 180-degree turn” in the latest statements by those responsible for the monetary authority. If the speech, until now, had predicted a slow and gradual decline in interest rates, in recent days the financial markets began to anticipate a faster pace, including a possible cut of 50 basis points in December. Euribor rates are already reflecting this hypothesis, falling to two-year lows in 12 months.

At the end of the summer, the expectation of most analysts was that the ECB would make only a small interest rate cut in September (the second, after July) and that there would be a “pause” in October. Only later, in December, would there be a new drop, also of 25 basis points: such was the markets’ prediction. The reality is different: not only was there no “pause” in October (a new reduction of 25 points was decided), but analysts already admit that At the December meeting the reduction may not be 25 but 50 points.

In an interview with the Bloomberg agency, Mário Centeno maintained that the ECB should not “limit itself to one metric to advance [na redução dos juros] only in steps of a quarter of a percentage point”, that is, 25 basis points, the minimum dose usually used by central banks.

ECB. Lagarde accelerates the rate cut and the markets anticipate that the Euribor could fall to 2% in June

“In an economy that has spent the last 10 years with an average inflation of 0.9%, for an economy that does not invest, for an economy that is sustained by a labor market that shows some signs of weakness, we have to consider moving forward with bigger steps”, stated the governor of the Bank of Portugal, who declared himself one of the members of the ECB Council most in favor of a rapid reduction in interest rates.

Rye is not the only one. Frenchman François Villeroy de Galhau, governor of the Bank of France, warned on Tuesday of a risk that until very recently was off the radar: risk of the inflation rate falling to a substantially lower value the ECB’s objective (which is 2% in the medium term). Faced with this risk, Villeroy de Galhau maintained that the ECB must be “agile” and react in a timely manner to signs that economic growth is weakening.

The key point in this discussion is that the interest rate, which was reduced to 3.25% last week, is still at a certainly “restrictive” level of economic activity: a restriction of activity that is justified when a central bank seeks to “cool” inflation, that is, the rate of increase in prices. It is estimated that a more “neutral” rate, which would neither restrict nor boost economic activity, would be around 2%. The question is how quickly the ECB intends to get there.

“Comments coming from the ECB this week clearly indicate that what appeared to be a balanced decision to gradually ease monetary policy tightening is, at this time, becoming an Panic to try to reach a “neutral” level as quickly as possible.”comments Carsten Brzeski, chief economist of the Dutch bank ING, who considers the “hurry” demonstrated by those responsible for the ECB a “remarkable 180-degree turn” with respect to the guidelines given until a few weeks ago.

Euribor rates fell to 3, 6 and 12 months to new lows from April and January 2023 and October 2022. SOURCE: Euribor-rates.eu

The team of analysts led by Richard McGuire, from Rabobank, also points out that there is a “still small but growing group” of ECB officials who maintain that the monetary authority is “dragging its feet” and being overtaken by events. “These officials argue that it will be necessary to make faster cuts to prevent inflation from falling to too low levels“say the analysts, adding that”the persistence of inflation [em níveis demasiado altos] is no longer the dominant risk – indeed, there is a similar risk that inflation falls too far, especially if growth remains weak.”

Eurostat estimated that core inflation, which excludes (more volatile) energy and food prices, fell to 2.7% in September, a “notable slowdown,” Goldman Sachs said in an analytical note published Thursday. Already the Global inflation fell to 1.7%.which also indicates that the pace of price increases will be faster than the ECB itself expected.

At the same time, more advanced indicators on economic activity in the euro area were published this Thursday, which point to a stagnation of economic growth, at low levels. The Purchasing Managers’ Index (PMI), an important indicator calculated by S&P, rose only one tenth to 49.7 points in Octoberand any value below 50 points indicates a contraction in economic activity.

ING’s Carsten Brzeski says that “after the ECB was slow to respond to rising inflation [em 2022] and possibly stopped rate hikes too late [em 2023], The ECB now seems determined to better anticipate the curve. and return interest rates to a more neutral level as quickly as possible.

The Euribor falls to new lows of three, six and 12 months

The Euribor fell this Thursday to three, six and 12 months to new lows since April and January 2023 and October 2022. However, in the shortest term of those used in mortgage credit in Portugal, three months, remained above 3%.

The Euribor rate – which is an interbank rate, defined in the market, but which closely follows the ECB’s rate expectations – fell to 3.072% in the quarter, remaining above the six-month rate (2.920%) and the 12-month rate (2.614%).

The six-month Euribor rate, which became the most used in January in Portugal for variable-rate mortgage loans and which was above 4% between September 14 and December 1, 2023, fell to 2.920 %, a new low since January 23, 2023. .

In 12 months, the Euribor rate, which was above 4% between June 16 and November 29, 2022, also fell to 2.614%, a new low since October 28, 2022.

The average Euribor in September fell to three, six and 12 months, with less intensity than in August and with less intensity in the shorter maturities. This average, which is used to calculate revisions to the fees paid to banks, fell 0.114 points in September, to 3.434% in three months (compared to 3.548% in August), 0.167 points, to 3.258% in six months ( compared to 3.425%) and 0.230 points to 2.936% at 12 months (compared to 3.166%).