QNB Expects ECB to Lower Rates to 1.5% by Year-End

Doha: QNB said it expects the European Central Bank (ECB) to lower its key interest rate to 1.50% by the end of 2025, which would be below the forecas...

Doha: QNB said it expects the European Central Bank (ECB) to lower its key interest rate to 1.50% by the end of 2025, which would be below the forecasted consensus level, amid growing risks to economic growth outweighing other concerns related to inflation.

In its weekly report, the bank pointed out that inflation rates in the Eurozone were finally brought under control last year after an unprecedented cycle of interest rate hikes by the ECB, which had launched a record monetary policy tightening phase involving 10 consecutive rate increases starting in mid-2022.

This drove the deposit facility rate from -0.5% up to 4%. Following this period of extremely tight monetary policy, inflation steadily declined from its peak of 10.6% towards the 2% target set by monetary policy.

The report added that in June last year, with inflation hovering just half a percentage point above the target, the ECB finally felt confident that price pressures had sufficiently eased and began a new phase of rate cuts. It noted that this gradual adjustment process brought the deposit rate to 2.25% by April of this year.

QNB noted in its report however that making further rate decisions is becoming more difficult, as incoming data are now being assessed meeting by meeting, while policymakers attempt to balance ongoing price pressures against short-term growth forecasts, which remain pessimistic for the Eurozone.