After the third interest rate cut this year, European Central Bank officials have begun discussing the prospect of looser policies, with the possibility of a drastic 50 basis point rate cut being put on the table. A well-known 'hawkish' at the ECB mentioned the possibility of a 50 basis point rate cut in December if inflation data supports it, hoping to see interest rates drop to a neutral level more quickly.

On October 24, Robert Holzmann, a European Central Bank Governing Council member participating in the IMF annual meeting, believes that at the last interest rate meeting of the year, the ECB may choose to cut rates by another 25 basis points, despite the ongoing risks of further inflation. Additionally, the Austrian central bank governor mentioned the possibility of taking a larger 50 basis point rate cut or suspending rate cuts temporarily.

At the same time, the Austrian central bank governor pointed out that the possibility of a more substantial rate cut of 50 basis points or suspending rate cuts cannot be ruled out. Holzmann said:

I think there is a possibility of a 25 basis point rate cut in December. Although a 50 basis point cut is unlikely, it cannot be completely ruled out. We may also conclude that the preventive rate cut in October has been sufficient, and we can temporarily hold off in December.

The current inflation in the eurozone is cooling off, with the inflation rate dropping unexpectedly to 1.7% in September. However, according to Holzmann, there are still upward risks for inflation, with concerns that inflation might be stronger than expected. He mentioned that if inflation data supports it, he is willing to see interest rates reach a neutral level more quickly.

Holzmann is one of the most hawkish interest rate setters at the ECB. Days before his statement, ECB officials had already begun discussing whether to lower interest rates to levels that would stimulate economic activity. Some officials believe that the ECB may be lagging behind in easing monetary policy and may need a more substantial rate cut.

Mario Centeno, the Governor of the Central Bank of Portugal, has also mentioned the possibility of a 50 basis point rate cut. He said:

The European Central Bank should consider a more significant interest rate cut, and policies must reach neutral levels as soon as possible. It is unclear whether the European Central Bank will lower interest rates below neutral. The European Central Bank may be lagging behind the situation.

The pace of consecutive interest rate cuts has begun. Although ECB officials have not yet reached a consensus on how many basis points to cut rates in December, almost all agree that further rate cuts are needed. Economists and traders expect the European Central Bank to take action again in December, with the market betting heavily on a 50 basis point rate cut.

Editor/ping