In a recent note, Franklin Templeton commented on the European Central Bank’s (ECB) 25 basis point rate cut, attributing the move to weak economic data and inflation falling below the 2% target.
As sluggish growth persists across Europe, the firm expects the ECB to continue its rate-cutting cycle, potentially dropping rates below 2% by mid-2025. Another 25 basis point cut is anticipated in December to address both subpar growth and inflationary shortfalls.
While there are indications that inflation could rebound later in 2024, Franklin Templeton cautions that this may prompt the ECB to slow its pace of easing. However, the firm warns that such caution could be premature, as inflation is likely to fall back below target in 2025, reinforcing the case for further rate cuts.
Against this monetary backdrop, Franklin Templeton views European fixed income as increasingly attractive, with a supportive central bank environment expected to persist.
ECB rate cuts this year. The next monetary policy meeting is December 12, 2024.
