Ben Nichols, Managing Director at RAW Capital Partners | The European Central Bank (ECB) has been signalling for several weeks that another rate cut was imminent, so this morning’s announcement is unlikely to trigger a significant market reaction. With Eurozone inflation falling to 1.8% in September, policymakers appear optimistic about the trajectory of the European economy, though inflation may rise again in Q4 due to base effects from last year’s sharp decline in energy prices.
“For global investors, the ECB’s confidence in cutting the base rate again, along with signals of another potential cut in December, could act as a catalyst for increased investment. Borrowing costs are falling, so we may see stronger economic growth in the months ahead, which could in turn enhance the appeal of European assets. However, investors should remain mindful of potential market volatility if the ECB cuts rates more aggressively than other major central banks, such as the Federal Reserve and the Bank of England (BoE). Indeed, the BoE next votes on interest rates on 7th November, so this will be an important event to follow.
“In the short term, as the gap in interest rate policies widens, the markets may become more uncertain, especially if geopolitical tensions worsen in the coming weeks and months. Therefore, it’s important that investors prioritise agility and diversification as they look to mitigate any potential risks to their portfolios.
