Euro Zone’s Path to Rapid Rate Cuts Amid Fading Inflation Pressures

Euro zone inflation may decrease faster than anticipated, with economic growth remaining weak. This trend supports the European Central Bank's push for urgent interest rate cuts. ECB policymakers note inflation could hit the 2% target sooner, prompting a reevaluation of monetary policy tightening.

Inflation in the Euro zone could subside more swiftly than previously expected, raising the prospect of further interest rate cuts by the European Central Bank (ECB) in the coming months, according to recent surveys and statements by ECB policymakers on Friday. The ECB already slashed interest rates for the third time on Thursday, citing moderating inflationary pressure as the rationale.

Insiders linked to ECB discussions revealed that inflation might reach the 2% target earlier than expected, prompting some policymakers to advocate a relaxation of strict monetary policy as a signal for more rate reductions. A blog post from Estonian central bank Governor Madis Müller on Friday pointed out significant changes in the economic outlook since the ECB's September projections.

Economic growth is forecasted to remain sluggish, alleviating pressure on price hikes, according to Müller and the ECB's recent Survey of Professional Forecasters, which anticipates a return to 2% inflation sooner than the ECB staff's current predictions. As recent data shows inflation hitting its three-year low, many foresee an easing of price pressures due to weak energy prices and subdued growth.

(With inputs from agencies.)