ECB accounts: Earlier path to 2% inflation, downside risks increase

In reviewing the October meeting accounts, ECB policymakers broadly agreed that the disinflationary trend in the Eurozone is progressing “well on track”.

While “upside risks” to inflation persist, they are now viewed as less significant, whereas “downside risks” have increased, influenced by slower economic activity.

This shift in balance suggests that inflation may reach the 2% target “somewhat earlier” than anticipated, with projections potentially indicating a lower inflation rate in 2025 than previously forecast.

Divergent views emerged regarding the precise impact of weaker economic growth on inflation, with members agreeing to revisit a more detailed assessment in December when updated projections become available.

A critical element behind the decision to cut rates was “risk management.” Members widely agreed that if the current economic slowdown proves “temporary”, cutting rates now could be seen as “having brought forward” a December cut. However, if data reveals “persistent weakness,” the move would constitute a “timely adjustment”.

In light of this economic environment, ECB Governing Council reached a consensus to lower rates by 25 basis points.

Full ECB accounts here.