ECB Starts Discussing Rate Cuts Below Neutral -- Sources

The European Central Bank (ECB) has begun discussing the possibility of cutting interest rates below the neutral level, according to sources familiar with the matter.

The move would be a significant step for the ECB, which has kept rates on hold since July 2022.

The neutral level is the rate at which monetary policy neither stimulates nor restricts economic growth. It is estimated to be around 1.5% for the eurozone.

Sources said the ECB is considering cutting rates by 25 basis points to 0.75% in September. They added that the decision will depend on the economic data in the coming months.

The ECB has been under pressure to cut rates as inflation in the eurozone has fallen sharply in recent months. The headline inflation rate fell to 8.6% in June, down from a peak of 10.1% in October 2022.

The ECB's mandate is to keep inflation at 2%. However, the central bank has said that it is willing to tolerate inflation above this level for a period of time in order to support economic growth.

The ECB's decision to cut rates below the neutral level would be a major shift in policy. It would signal that the central bank is more concerned about the risk of a recession than the risk of inflation.

The ECB is not the only central bank that is considering cutting rates. The Bank of England is also expected to cut rates in the coming months.