The European Central Bank (ECB) lowered interest rates on Thursday for the third time this year, cutting its key deposit rate by 25 bps to 3.25%. The ECB said the move aims to curb potential for “downside surprises” in the eurozone economy. The move is the bank’s first back-to-back rate cut in 13 years, five weeks after a previous rate cut.

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The context: Inflation dropped below the eurozone’s 2% target to 1.7% in September, its lowest level in three years.

REMEMBER- Central banks are pivoting toward cutting rates as inflation slows down, with the US Federal Reserve spearheading the global policy-easing cycle, cutting interest rates by half a percentage point in September.

The rate cut is expected to spur growth for the region by giving “a boost to the German [and wider eurozone] economy, inspiring consumer spending, encouraging investment, and ultimately stimulating the economy,” Joe Nellis, an adviser to the financial consultancy MHA, told The Guardian. Germany, the region’s largest economy, faces the risk of a second year of contraction.

If inflation remains on its downward slide, an aggressive cut could be on the table. “A 50 bps cut at the next meeting in December is a possibility if the two inflation and PMI prints of October and November continue to surprise on the downside,” said Douglas Lytle, an editor at Bloomberg Intelligence.

ECB president Christine Lagarde signaled that the bank is unlikely to stick to “a particular rate path,” only keeping rates “sufficiently restrictive for as long as necessary” to achieve its 2% target.

Some pundits concur, seeing as the ECB “will likely want to keep flexibility about a December cut and will push back against the idea that this is the start of consecutive cuts,” ING said in a note ahead of the decision.

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THE CLOSING BELL-

The EGX30 fell 1.3% at Thursday’s close on turnover of EGP 3.8 bn (8.9% below the 90-day average). Local investors were the sole net sellers. The index is up 21.1% YTD.

In the green: Abu Qir Fertilizers (+2.3%), Oriental Weavers (+2.2%), and Egypt Kuwait Holding -USD (+1.6%).

In the red: Juhayna (-11.5%), Eastern Company (-6.3%), and Palm Hills Development (-5.5%).

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