ECB to cut rates again amid bleak eurozone outlook

The European Central Bank is expected to cut interest rates again this week amid a darkening outlook, with political turbulence in the eurozone's two biggest economies adding to the troubled picture.

It would be the ECB's third straight reduction as it increasingly focuses on spurring lending to boost consumer spending and business investment in the 20 countries that use the euro.

The central bank hiked rates aggressively from mid-2022 to tame surging energy and food costs but, with inflation easing and the eurozone weakening, they have now turned their attention to cuts.

Recent worse-than-expected data had fuelled speculation the ECB could deliver a hefty, half-percentage-point cut for the first time in its easing cycle when it meets Thursday.

But with inflation pressures still a concern — the indicator rebounded above the central bank's two-percent target in November — most analysts now expect the ECB to continue at the same pace as before, with a quarter-point cut.

"While there is a strong case for the ECB to accelerate the pace of policy easing by delivering a (half point) cut, a majority of the governing council seems to prefer" a quarter-point reduction, Capital Economics said in a note.

It will be the Frankfurt-based institution's fourth cut since June, and will take the key deposit rate to three percent.

  Growth worries 

ECB officials have repeatedly raised concerns about the weakening growth outlook in the single-currency area, signalling a shift away from being laser-focused on bringing down inflation.

Eurozone inflation peaked at 10.6 percent in late 2022 after surging in the wake of Russia's invasion of Ukraine and amid post-pandemic...