ECB will have to cut interest rates: financial expert explains the background and effects of monetary policy.

ECB will have to cut interest rates: financial expert explains the background and effects of monetary policy.

According to a report by finanzmarktwelt.de,
Markets expect the European Central Bank (ECB) will be forced to cut interest rates significantly to support the weak eurozone economy. Money markets' forecast for next year suggests a full percentage point cut in interest rates, compared with an earlier expectation of 75 basis points. This development is primarily driven by weak economic performance in Germany, which could force the ECB to loosen its monetary policy to prevent a sharp economic downturn.

The interest rate adjustment came after a sharper-than-expected fall in UK retail sales in October (-2.7%) and weak US jobs data that suggested unemployed people are finding it difficult to find new jobs. The fall in oil prices into a bear market has also increased fears of a global recession. This caused bond prices to rise and yields to fall.

Nevertheless, some ECB members have stressed that it is too early to think about easing monetary policy. They plan to keep interest rates at a higher level for the time being. The inflation rate has also slowed significantly, which the ECB members justify as a reason for pausing interest rate increases.

These developments show that markets and ECB members are divided over future monetary policy. The uncertainty could lead to increased volatility in financial markets and impact investment decisions. A significant reduction in interest rates by the ECB would have an impact on the entire financial sector, especially banks and insurance companies. This could result in lower returns and possibly a revaluation of investments.

It remains to be seen how the ECB will react to market expectations and how this will affect the economy and the financial sector.