The inflation rate in Eurozone rose slightly from June to 2,6%, a slight increase.
Eurostat’s report of a rise in inflation was higher than the economists surveyed by Reuters who predicted that price pressures would remain at 2.5%.
Investors expect the European Central Bank to cut rates again this year at its meeting in September.
The ECB must balance monetary and fiscal policy
In response to economic impact of COVID-19, the ECB became the first central bank in the world to lower rates.
The central bank reduced its benchmark rate of deposit from 4% down to 3.5% in June with the goal of bringing inflation closer to its target of 2% by the end next year.
The slight increase in inflation, to 2,6%, complicates ECB’s job of balancing price stability and economic growth.
The ECB is being pressed to take decisions which will promote economic stability while preventing further inflation.
Many people see the anticipated September rate reduction as an important step that will encourage borrowing and investments, helping to sustain economic growth in Eurozone.
Is another reduction of borrowing rates on the way?
Investors are expecting further reductions in borrowing rates. The ECB is closely watched by the financial markets.
The ECB would be signaling its commitment to a monetary policy that is accommodative to help support the economy with a second rate reduction.
Low interest rates can reduce borrowing costs, encouraging spending and investments. However, if they are not carefully managed it could lead to inflationary pressures.
In June, the ECB cut interest rates based on a forecast of inflation aligning with the 2% goal by 2024.
Recent inflation figures suggest that the price stability remains a problem.
This meeting in September will determine the ECB’s strategy for managing inflation and supporting growth.
As the European Central Bank prepares to hold its next meeting on September, the slight rise in inflation in Eurozone is a concern.
Investors expect another rate cut. The ECB will have to find a delicate balance in order to promote economic recovery while controlling inflation. Decisions made over the next few weeks are crucial to the future of Eurozone’s economy.
The post Eurozone inflation increases to 2.6% amid expectation of ECB rate cuts may be updated as new developments unfold
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