European Central Bank Rate Cut Expected in December

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European Central Bank
Euro Symbol at the European Central Bank (ECB) in Frankfurt, Germany.

The European Central Bank (ECB) is expected to cut rates in December. Analysts predict that the rate cut may be larger than the 0.1% that is currently expected. The ECB is also expected to amend its purchase program that is currently is valued at €60 billion.

Monetary easing was discussed last month, and will be discussed further during the December 3 meeting. The ECB is expected to cut rates in an attempt to combat low inflation rates for the euro. Initial reports indicate that the ECB may miss its target inflation rate by nearly 2% due to weak growth and lower prices of commodities.

Rate cuts are attempt to generate growth within many European Union countries. The idea is that a rate cut will push banks to stop leaving money within the ECB, and start lending it to small businesses and consumers where needed. A major concern among investors is that these banks will park their money overseas, which would boost inflation even more and cause prices to rise.

The last time the ECB cut rates was in September 2014 when the deposit rates were cut to -0.2%.

ECB policymakers have noted that they are currently debating the reduction of interest rates at this moment. Many state that a 0.1% reduction would have little impact on the inflation rate.

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