Confirming market expectations, the European Central Bank cut its key interest rate by another 25 basis points against the backdrop of a moderation of inflation in the euro area to 2.2%, very close to the 2% target, but also amid concerns about sluggish growth. However, following its standard practice in recent times, it is keeping a tight lid on the next steps. 

The ECB had begun its monetary easing cycle in June—with a corresponding rate cut—well ahead of the Fed, followed by a pause in July. On the other side of the Atlantic, the Federal Reserve is expected to decide next week whether to move conservatively or whether to accelerate with a mega cut of 50 basis points. At present, analysts think a milder 0.25% cut is more likely in the wake of yesterday's inflation data that showed an elevated reading for the structural index.

In its new forecasts, it expects inflation to average 2.5% in 2024, 2.2% in 2025, and 1.9% in 2026, in line with its June projections. It slightly revises down its growth forecast to 0.8% in 2024, accelerating to 1.3% in 2025 and 1.5% in 2026.