European Central Bank to continue gradual easing: Experts

ISTANBUL

The European Central Bank (ECB) is expected to continue gradually easing its monetary policy amid rising inflation and a weak economy, according to market analysts.

Carsten Brzeski, global head of macro at Dutch-based ING bank, said in a recent article that the ECB board members seem to have agreed on a 25-basis point cut but a larger cut could still be on the table, as the bank is back to the point it was before the October meeting, though this time, the question is whether the cut will be 25 or 50 basis points.

Brzeski said confidence indices have weakened since the October meeting while headline inflation accelerated, posing a very disturbing situation for the bank, as negative risks have clearly grown.

“Think of the potential adverse effects from US economic policies over the coming months but also political instability in the two largest eurozone economies and now even a public finance crisis in France,” he said, also referring to the upcoming snap German elections.

“The problem for the ECB is that these possible risks will not be reflected in the latest round of staff projections,” he added.

Brezski highlighted that the deadline for these projections coincides with the recent political turmoil in France, where the government lost a no-confidence vote, and he estimated that the ECB’s official projections will not change much from September.

He noted a slight downward revision in growth and inflation for 2025 and probably no change in 2026 projections, adding that many ECB officials may feel more negative despite official projections not revealing major changes.

Brzeski stated that a 50-basis point rate cut would be more of a security move to prevent possible risks to the eurozone economy from the probable policy preferences of the incoming Trump administration and the ongoing political turmoil in France and Germany.

He said he foresees a 25-basis point cut at the ECB’s December meeting.

“Eventually, it will all come down next week to the question whether the ECB will follow its gut feeling on everything that could happen over the coming months as a result of latest political developments or whether it sticks to the reality reflected in the staff projections, not taking into account all eventualities,” he said.

Dirk Schumacher, head of European macro research at Paris-based Natixis, said in a recent statement that the ECB may continue with gradual easing and may cut its deposit rate by 25 basis points at the December meeting, which would provide a good compromise between the weak growth outlook and high service inflation, though it is unclear how the upcoming Trump administration could play into it.

Schumacher said President-elect Donald Trump’s November election win and the possibility of sharp increases in US tariffs pose risks and that these risks are not factored into projections.

Marco Wagner, senior economist at German-based Commerzbank, recently said that the ECB could opt for a 25-basis point cut and that a 50-basis point cut is unlikely despite the weak European economy.

*Writing by Emir Yildirim