ECB's Strategic Shift: Interest Rate Cuts to Combat Stagnation

The European Central Bank is set to cut interest rates for the third time this year, addressing stagnating economic growth in the euro zone amid controlled inflation. With business activity and sentiment weakening, further cuts are expected at upcoming ECB meetings to maintain economic momentum.

The European Central Bank (ECB) is poised to lower interest rates for the third time this year, as inflation within the euro zone is increasingly under control and the region's economy experiences stagnation. This marks the first consecutive rate cut in 13 years, signaling a shift in policy focus towards protecting economic growth, which has lagged behind the United States for two consecutive years.

Recent economic data, including business activity and sentiment surveys, indicate weaker-than-expected figures, bolstering the case for a rate cut. ECB President Christine Lagarde, along with other officials, have hinted at an imminent reduction in borrowing costs, leading investors to anticipate this move. "Given the loss in growth momentum and inflation moderation, we expect the ECB to initiate a 25 basis point cut at each of the upcoming four meetings," said UBS economist Reinhard Cluse.

Despite the transparency of the situation, Lagarde has reiterated the ECB's approach of making decisions "meeting by meeting" based on incoming data. However, the consensus among ECB observers is that further cuts are likely until the spring, reflecting deep challenges in stimulating Europe's economic growth and addressing structural issues.

(With inputs from agencies.)