Traders Signal ECB May Be Moving Too Slowly on Rate Cuts

Investors are warning that the European Central Bank's (ECB) gradual approach to cutting interest rates may drive inflation below its 2% target, risking economic fragility. Data suggests that inflation will dip below 2% earlier than ECB's projections. Market sentiments reveal concerns over ECB's growth outlook, pushing policymakers to reconsider their strategies.

Investors are sounding the alarm over the European Central Bank's (ECB) cautious pace in cutting interest rates, which they believe could force inflation below the bank's 2% target and jeopardize the bloc's already fragile economy. According to data compiled by Danske Bank for Reuters, inflation may fall below the target as early as January, much sooner than the ECB's 2025 forecast.

The ECB has been battling high inflation rates, which peaked in double digits less than two years ago. Aggressive rate hikes have since eased these pressures, and the bank kicked off an easing cycle in June, with the most recent rate cut occurring earlier this month. However, market signals suggest that the ECB may be behind the curve, risking prolonged below-target inflation.

Notably, euro zone business activity contracted unexpectedly in September, supporting traders' calls for a faster pace of rate cuts. With some policymakers preparing to advocate for an October rate cut against conservative resistance, the ECB is facing mounting pressure to balance its economic strategies carefully.

(With inputs from agencies.)