European Central Bank set to deliver final rate cut of the year

This is CNBC's live blog covering the European Central Bank's December 2024 meeting.

European Central Bank policymakers are set to hold their last meeting of the year on Thursday, with expectations firmly set for the fourth quarter-percentage-point interest rate cut of 2024.

Such a move would take the deposit facility — its most closely-watched rate — to 3%. The rate had been held at 4% since Sept. 2023, prior to the first cut of the current easing cycle in June 2024.

It appears unlikely that a trim of 50 basis points could be in store, even after headline inflation settled near the ECB's 2% target, while growth indicators show continued signs of deterioration in the euro zone's big manufacturing economies, including in Germany.

The ECB has done little to sway market predictions of a smaller trim. The European central bank has firmly guided expectations this year, unlike the Federal Reserve, which surprised many with its 50-basis-point rate cut in September, and the Bank of England, which has left market-watchers guessing due to its divided committee.

A recent uptick in negotiated wage growth and persistence in service sector inflation have solidified expectations for the 25-basis-point move.

Two key details will be in focus: firstly, staff macroeconomic projections for growth and inflation, which were last delivered in September. Secondly, whether the ECB will modify its consistent messaging that it will "keep policy rates sufficiently restrictive for as long as necessary."

Any dovish shift in that language will be seen to support a swifter pace of rate cuts next year, especially given the potential for looming trade tensions with the U.S. The euro zone's weak growth outlook and global uncertainty have already led many analysts to update their forecasts to suggest 25-basis-point cuts at every ECB meeting until September 2025, taking the deposit facility to 1.5%.

Euro zone bond yields higher

Germany's 10-year bond yield, seen as the euro zone benchmark, was two basis points higher at 2.153% at 12:15 p.m. in London, an hour ahead of the European Central Bank's decision. The French 10-year was near-flat, while Italy's 10-year yield was four basis points higher.

Spreads between euro zone bond yields have been in focus in recent months amid political instability in France and Germany.

As of early Thursday afternoon, money markets had fully priced-in a 25 basis point rate cut, and suggested expectations for the ECB's deposit facility to fall from the current 3.25% to 1.85% in June and 1.75% by September 2025.

"If the [ECB's] communication turns more dovish, then markets may going forward be even keener to price in a lower landing zone on the back of weaker economic data," ING strategists Benjamin Schroeder and Padhraic Garvey said in a Thursday note.

"With a terminal rate pricing of 1.75% the market is already geared towards the central bank taking interest rates into accommodative territory next year," they said, referring to the interest rate level at which the ECB views monetary policy at the correct level and ends its round of cuts.

"But a dovish stance this meeting would probably allow the market to further undershoot this level if the outlook were to worsen, sensing that the ECB could be even more inclined to supporting growth," they continued. 

— Jenni Reid

Big question for ECB rate cuts in 2025 is Trump policy

The European Central Bank's trajectory for rate cuts in 2025 will depend on the impact of U.S. President-elect Donald Trump's policies on the global economy and on euro zone growth, Stefan Gerlach, chief economist at EFG Bank, told CNBC's "Squawk Signs Europe."

"Suppose that we see trade barriers that threaten to slow the European economy further. Then I can well imagine that the ECB will decide to cut interest rate a little bit more rapidly, a little bit more often," Gerlach said.

"The big question, I think for all of us, is, what will the Trump administration do with economic policy? Will it carry out all the bold policy moves that President-elect Trump has mentioned during the campaign, or will some of them not be introduced, or will they be scaled back? I think no one really knows," he added.

Trump has previously threatened universal tariffs on imports to the U.S., floating higher tariffs on countries including China and Mexico and sparking concerns about retaliation and a global trade war slowing growth. The euro zone is seen as particularly highly vulnerable. Anticipated deregulation and tax cuts have also been flagged by economists as potentially drawing investment away from Europe.

— Jenni Reid

Euro higher ahead of interest rate decision

The euro was slightly higher against major currencies at 9:45 a.m. London time (4:45 a.m. ET), ahead of the European Central Bank's announcement at 1:15 p.m.

The euro was up 0.17% against the U.S. dollar at $1.051, and 0.1% higher against the British pound. It jumped 0.52% against the Swiss franc, which showed broader weakness after the Swiss National Bank cut interest rates by 50 basis points.

The euro has nonetheless tumbled against the U.S. dollar in the year-to-date, dropping from $1.104 amid expectations of fewer Federal Reserve rate cuts in 2025 and weak economic forecasts for the euro zone.

— Jenni Reid

European bourses start the day higher ahead of ECB's rate decision

Major European bourses started the trading day in positive territory, as investors awaited the European Central Bank's interest rate decision.

France's CAC 40 index was around 0.15% higher at 8:54 a.m. London time, while Germany's DAX added 0.16% and the Italian FTSE MIB rose by 0.54%.

The pan-European Stoxx 600, which also includes companies from countries that are not governed by the ECB, such as the U.K., had a muted start to the day and was last 0.09% higher.

— Sophie Kiderlin

Swiss National Bank takes leap with 50-basis-point interest rate cut amid franc strength

The Swiss National Bank on Thursday cut its key interest rate by 50 basis points, exceeding expectations of a smaller trim amid an ongoing tussle with depressed inflation and a strong Swiss franc.

The cut takes the bank's main rate to 0.5%. More than 85% of economists polled by Reuters had forecast the bank would implement a 25-basis-point cut.

Read the full story here.

— Ruxandra Iordache

A downward revision of the inflation forecast could 'lay the path for an accelerated easing cycle,' ING says

Revisions to the European Central Bank's inflation projections could create the opportunity for a faster paced rate cutting cycle, Chris Turner, global head of markets at ING, said in a note Thursday.

"We think there could be some downward revision to growth and perhaps even inflation forecasts today," he said, noting that the focus would be on whether the ECB reduces its inflation forecasts.

In its previous projections in September, the central bank forecast headline inflation would come in at 2.5% in 2024, 2.2% in 2025 and 1.9% in 2026.

"Dropping the 2025 forecast closer to 2.0% could potentially lay the path for an accelerated easing cycle," Turner said.

— Sophie Kiderlin

ECB set to poise Europe for growth in 2025 with cut and move signals, Goldman Sachs says

The European Central Bank is set to cut rates by 25 basis points on Thursday and signal further reductions to come, teeing up Europe for stronger economic growth in 2025, according to Goldman Sachs.

"We do think the ECB will go gradually ... but I do think there's going to be some acknowledgement today that rates are headed into a lower direction," Chief European Economist Jari Stehn told CNBC ahead of the decision.

"Lower rates will help somewhat with savings and boosting consumer spending, and that is one reason why we do think Europe will grow next year," he added.

ECB grappling with sticky services and core inflation

Headline inflation in the euro area may have cooled near to the European Central Bank's 2% target in recent months, but core inflation — excluding the effects of energy, food, alcohol and tobacco — has held at 2.7% for three straight months.

Services inflation has meanwhile held stubbornly near 4% through the latter half of this year, as negotiated wage growth — another concern for the inflationary outlook — rose to 5.42% in the third quarter from 3.54% in the prior period.

In its most recent forecast in September, ECB staff macroeconomic projections put average euro area inflation at 2.5% in 2024, 2.2% in 2025 and 1.9% in 2026. Those forecasts were unchanged from June.

— Jenni Reid

Economists expect 'lively debate' resulting in a 25-basis-point cut

The European Central Bank will debate whether to cut by 25 or 50 basis points on Thursday, but will ultimately settle on the smaller move, several economists told CNBC.

A key point of discussion is likely to relate to how low interest rates need to go to become "neutral" — the point at which monetary policy is neither stimulating nor restricting economic growth.

Last month, influential policymaker Isabel Schnabel told Bloomberg that rates were getting "closer to neutral territory," which she estimated at 2% to 3%, and cautioned against going too far below that.

However, more dovish members such as French central bank Governor Francois Villeroy de Galhau have continued to say that any size of a cut should be an option in December, and that moving rates below neutral — into accommodative territory — could be needed if growth remains subdued and inflation falls below target.

"This is the ECB, so they always move very slowly... part of the problem is the ECB council is very divided," Fabio Balboni, senior European economist at HSBC, previously told CNBC's "Squawk Box Europe," forecasting "very lively debate" at the December meeting and a 25-basis-point decision.

Weak economic data points including German retail sales will all be under consideration, along with disagreement over whether the fight against inflation is "not quite done," Balboni said.

Bank of America Global Research strategists said in a note on Tuesday that the ECB was likely to cut by 25 basis points at every meeting, including in December, until September 2025.

"With an economy that will be growing at or below trend for most of 2025, we think it will be hard for the ECB to skip a meeting until the [deposit facility] falls slightly below where it sees the neutral rate (2%), to where we see it (1.5%)," they said.

— Jenni Reid