Source: Glonui.

Recently, a wave of interest rate cuts in europe has attracted widespread market attention.

On November 7, the two major central banks in Sweden and the united kingdom successively announced interest rate cuts. Among them, the Swedish central bank cut interest rates by 50 basis points, lowering the benchmark interest rate from 3.25% to 2.75%; the Bank of England cut interest rates by 25 basis points, lowering the benchmark interest rate from 5% to 4.75%.

Industry insiders pointed out that the successive interest rate cuts by major central banks in europe reflect, on the one hand, concerns about economic growth in various countries, attempting to stimulate economic activity, increase investment and consumption, and promote economic recovery by lowering interest rates. On the other hand, the decline in inflation pressure has given central banks room for interest rate cuts, which can stabilize prices while promoting economic development.

Swedish central bank cuts interest rates by 50 basis points for the first time in ten years.

On November 7, the Swedish central bank lowered the policy rate by 0.5 percentage points to 2.75%, and indicated that it may further reduce interest rates in December and the first half of 2025. This is also the largest single interest rate cut by the Swedish central bank in nearly a decade, aiming to accelerate support for the stagnant economy.

In a press release issued on Thursday, the Swedish central bank stated that due to the decline in inflation rates and continued weak economic activity, the central bank has gradually relaxed its monetary policy over the past year. Although economic agents expect the situation to improve in the future, there are still no clear signs of recovery. In order to further support economic activity, the pace of rate cuts needs to be slightly faster than evaluated in September.

Strong economic activity is important in itself, but it is also a necessary condition for inflation to stabilize near the target level. Therefore, the Swedish central bank has decided to cut the policy interest rate by 0.5 percentage points to 2.75%.

If inflation and the outlook for economic activity remain unchanged, the policy interest rate may be cut again at the monetary policy meetings in December and the first half of 2025, consistent with the message conveyed in September.

The Swedish central bank stated that it is currently difficult to assess economic developments, especially foreign ones, especially after the US presidential election. Geopolitical tensions, overseas economic policies, the Swedish Krona exchange rate, and economic activity pose risks that could affect the outlook for economic activity and inflation, leading to different monetary policy stances.

Swedish commercial banks also indicated that Swedish data has been weaker than expected since the central bank meeting in September. Preliminary GDP figures show that Sweden's economy performed poorly in the third quarter, with both quarter-on-quarter and year-on-year declines of 0.1%. The central bank's business survey also indicates a weak outlook.

In the future, as inflation is brought under control, the Swedish central bank will focus more on supporting economic activity. The new information since September should be sufficient for the central bank to make the decision to cut rates by 50 basis points.

The Bank of England cuts interest rates by 25 basis points.

At 20:00 on November 7th Beijing time, the Bank of England announced its rate decision to cut rates by 25 basis points, reducing the benchmark rate from 5.0% to 4.75%. This marks the second rate cut by the Bank of England in this cycle, following the previous cut in August.

The voting results indicate that officials decided to cut the rate by 25 basis points with 8 in favor and 1 against. The main driver behind this decision is the easing of inflation pressures, although domestic inflation pressures still exist.

The Bank of England has stated that the UK inflation rate in September fell to 1.7%, a significant decrease compared to the beginning of the year. However, energy prices are expected to no longer drag down overall inflation before the end of the year, so inflation is expected to temporarily rise to around 2.5%. The inflation of service industry prices began to ease from the middle of the year, dropping to 4.9% in September. Nevertheless, wage growth remains supportive, with an average growth rate of 4.8% over three months.

The MPC pointed out that the labor market has slightly eased, although the employment market remains relatively tight. While this trend may alleviate inflationary pressure, its specific impact has significant uncertainties. In terms of policy impact, the Autumn Budget of 2024 is expected to lift GDP by approximately 0.75% over the next year, with inflation expected to rise by 0.5 percentage points, primarily influenced by cost pressures from the increased national insurance for employers and the minimum wage adjustment.

Regarding the future inflation situation, the MPC presented three potential inflation trends:

If wages and price mechanisms quickly return to normal, inflation may dissipate rapidly;
If the economy needs to go through a brief period of stagnation to completely eliminate inflation inertia, inflation may take longer to decline;
If structural factors prolong inflation, a longer period of monetary tightening policy may be needed.

The Bank of England stated that the committee will gradually adopt a more relaxed policy in the future, closely monitor inflation trends, and adjust policy measures flexibly to ensure the achievement of medium-term goals. Until the economic outlook becomes clearer, policy still needs to maintain a certain degree of tightening to address potential inflation risks.

Rupert Watson, Global Head of Macro and Dynamic Asset Allocation at Mercer, stated that the Bank of England is likely to continue cutting interest rates, but the bank is expected to consider the fiscal situation and may adjust its pace accordingly. The Bank of England will also consider the impact of the newly elected US President on the domestic economy. The overall situation in the UK is slow growth, with a slight boost expected in 2025. However, with the target of reducing inflation to 2%, the Bank of England maintains its gradually accommodative stance.

Is a 'interest rate cut wave' breaking out in Europe?

After the end of the US election, expectations of a 50 basis points rate cut at the December meeting of the European Central Bank continue to rise. Although a 25 basis points rate cut is still seen as more likely, the market has priced in more easing policies.

It is widely expected that the European Central Bank's terminal interest rate will be between 1.75% and 2.00%, reflecting expectations of changes in economic policies after Trump's election.

Analysts point out that the focus of the European Central Bank's monetary policy should shift from containing inflation to addressing the challenges faced by the euro area's economic growth.

European Central Bank Vice President Luis de Guindos stated that the continuous decrease in the euro area's inflation rate provides bullish signals, but consumer consumption has not recovered as expected. In addition to geopolitical risks and slow global trade recovery, this may result in prices staying high with increasing downside economic risks. Monetary policy must be cautious and gradually implemented to avoid errors in highly uncertain circumstances.

Mojmir Mrak, professor at the Faculty of Economics and Business of the University of Ljubljana, also pointed out that considering geopolitical risks, the European Central Bank will persist in gradually lowering interest rates in the first half of next year.

Comparing the situation after the last meeting with today, it is evident that the market's expectations for rate declines will be slower.

He stated that the European Central Bank is now on the path of lowering interest rates. However, given the highly unstable world we live in, it is expected that the European Central Bank will take gradual action. If there are greater fluctuations in oil prices in the Middle East, the situation will change immediately.

If the European Central Bank takes a gradual approach, it is still possible to cut interest rates by 25 basis points at the December meeting, with a further slight rate cut in the first half of next year.

Editor / jayden