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Eurozone inflation eases but ECB's Nagel warns against rate cuts

EditorAmbhini Aishwarya
Published 11/28/2023, 05:21 AM

Bundesbank President Joachim Nagel has cautioned against the anticipation of early interest rate reductions, signaling that the European Central Bank (ECB) may hold off on rate cuts despite recent signs of easing inflation. Speaking in Nicosia today, Nagel highlighted the complex journey towards meeting the ECB's inflation target, given the potential for future price increases stemming from base effects.

The eurozone has seen a significant drop in inflation, with rates falling from a high of 10.6% to 2.9% in October. This decrease has led to market expectations of interest rate cuts as early as April. However, Nagel's comments suggest that the ECB is likely to maintain its current pause on rate hikes at the upcoming December meeting, after concluding its recent series of increases.

The caution expressed by Nagel comes at a time when the eurozone is grappling with economic challenges triggered by the tightening of monetary policy. The region's Gross Domestic Product (GDP) saw a decline in the third quarter, and negative business sentiment has raised concerns about a looming recession. Despite these challenges, there is a glimmer of hope as projections indicate the possibility of the economy narrowly avoiding a downturn, showing signs of minimal growth or stabilization.

Nagel anticipates that the path for inflation rates will be volatile moving forward, underscoring the uncertainty surrounding the eurozone's economic outlook. The ECB's stance in the coming months will be closely watched as policymakers balance the need to control inflation with the risks associated with an economic slowdown.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

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