With inflation down, ECB eyes faster tempo of rate cuts

FRANKFURT

The European Central Bank is expected to lower interest rates again this week as anxiety about inflation in the eurozone fades and concerns over sluggish growth mount.

Inflation fell to 1.8 percent across the 20 members of the euro area in September, the first time it has been below the ECB's target of two percent since 2021.

While the rate is expected to tick up again towards the end of the year, the sense that consumer prices are back under control has grown.

"Victory against inflation is in sight," French central bank governor Francois Villeroy de Galhau, who sits on the ECB's rate-setting governing council, said last week.

"A cut is very likely," he told Franceinfo radio, adding that "it will not be the last."

ECB policymakers will meet in Slovenia on Oct. 17 to decide whether to reduce rates further and up the tempo of cuts.

The central bank is headquartered in Frankfurt but sometimes holds monetary policy meetings in other parts of the eurozone.

The bank has already cut rates twice from their peak of 4 percent, once in June and again at its last meeting in September.

The ECB lowered the interest on its deposit facility by 25 basis points in each case, leaving the benchmark rate at 3.5 percent.

In response to soaring inflation triggered by the unwinding of coronavirus pandemic lockdowns and Russia's invasion of Ukraine, the ECB had raised rates further and faster than ever before.

The moves to raise borrowing costs and slow the pace of consumer price rises had their effect. The ECB's efforts to tame inflation were "progressing", the bank's president Christine Lagarde said last month.

Recent economic indicators "strengthen our confidence that inflation will return to target in a timely manner", Lagarde told the European Parliament.