The Bank of Russia unexpectedly maintained its key interest rate at a record-high 21% , defying analysts’ expectations of another significant hike as inflation remains stubbornly elevated. The decision marks a shift toward a more measured approach in balancing economic growth and price stability. Key Details Inflation Concerns: Annual inflation climbed to 8.9% in November, well above the central bank’s 4% target , with inflation expectations reaching 13.9% in December. Policy Rationale: The central bank cited the significant tightening of monetary conditions after October’s 200-basis point hike as sufficient to resume disinflationary processes. Governor Elvira Nabiullina emphasized avoiding both economic overheating and severe slowdowns. Economic Overheating: Elevated government spending on the war in Ukraine and social programs, coupled with labor shortages and rising wages, have fueled strong domestic demand, exacerbating price pressures...
Italian inflation has dipped below 1%, intensifying pressure on the European Central Bank (ECB) to expedite interest rate cuts. According to Italy’s statistics institute, consumer prices rose by only 0.8% year-over-year in September, down from 1.2% in August. This deceleration is attributed primarily to declines in energy, transport, and communication costs, aligning with analyst expectations from a Bloomberg survey.
These figures are part of a broader trend across the 20-nation euro zone, with inflation readings in France and Spain also falling below the ECB’s target of 2%. In light of this, investors have significantly increased bets that October will see the third reduction in borrowing costs for the year.
Data from six German states indicated moderation ahead of the national figures, which are due later today. For the euro zone as a whole, analysts anticipate inflation to be around 1.8% based on Bloomberg polls.
Implications for ECB Policy
“Underlying inflation declined to 1.8% in September from 2.3% in August, contrary to our expectations for a small increase,” noted Simona Delle Chiaie, an economist at Bloomberg Economics. “The drop in underlying inflation in Italy adds to the positive narrative for the ECB, confirming a well-advanced disinflation process.”
ECB President Christine Lagarde is scheduled to address EU lawmakers this afternoon, marking her first opportunity to discuss the significant increase in investor expectations for further rate reductions, anticipated on October 17. Currently, money markets are pricing in a nearly 80% probability of a rate cut.
Despite cooling inflation figures, some ECB hawks remain hesitant to support a swift policy shift, pointing to elevated services inflation, which exceeded 4% in August. However, Italian Prime Minister Giorgia Meloni advocates for an October rate cut, emphasizing the necessity of looser monetary policy to foster economic growth. Her government aims for an economic expansion of approximately 1% in 2024 but recognizes the need for more substantial growth to address a debt burden exceeding 130% of GDP.
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