Some rate-setters of the European Central Bank (ECB) have floated the idea of a possible 50-basis point rate cut, signaling a shift in focus from inflation concern to growth challenges in the eurozone.

The prospect of such a cut could be considered during the ECB's December meeting, when the central bank will decide its next move, according to Portugal's central bank governor, Mario Centeno. Speaking to CNBC on Wednesday, Centeno cited recent data that could support a more aggressive rate cut.

Inflation in the euro area unexpectedly fell in September, leading the ECB to lower key interest rates by 25 basis points last Thursday. This marked the third rate cut this year and the first back-to-back rate reduction in 13 years.

Although ECB President Christine Lagarde insisted that the rate cut was based on the view that the "disinflationary process is well on track," speculation is growing in the market regarding a potential 50-basic point cut in December.

Klaas Knot, president of the Dutch Central Bank, expressed confidence that inflation will return to target levels sometime next year, noting that a 50-basis point rate cut should not be ruled out for December.

In contrast, Austrian central bank chief Robert Holzmann believes that, based on current data, a 50-basis point rate cut is unlikely in December.

Inflation in the euro area dropped sharply to 1.7 percent in September, down from 2.2 percent in August. This marks the first time inflation has dipped below the 2-percent target since mid-2021.

Following the governing council meeting last Thursday, Lagarde acknowledged that the inflation figure was a surprise. "I'm not sure we had anticipated that 1.7 percent, nor did anyone else for that matter."

An ECB survey of professional forecasters published last Friday adjusted the inflation expectation for 2025, lowering it to 1.9 percent from two percent.

Lagarde stressed that the fight against inflation is not over and it is still premature for the central bank to claim victory.

The euro area economy stagnated throughout 2023 and recovery has been slow in 2024. While Lagarde dismissed concerns about a recession, she acknowledged that economic activity has been weaker than expected.

There are rising concerns that the current restrictive monetary policy may hinder the fragile economic recovery.

Knot told CNBC that the ECB should be as concerned about undershooting targets as it is about overshooting them. He noted that the ECB can continue to cut rates until it reaches a neutral stance, defined as neither expansionary nor contractionary, particularly if the December projections align with further deterioration in economic data.

There have been calls for the ECB to lower its key interest rate to the neutral rate, also known as the natural rate, which is neither expansionary nor contractionary. The natural rate is not constant over time and was near zero during the 2010s (equivalent to a nominal rate of two percent), according to an ECB study published in September.

Given that the current policy rate remains significantly higher than the neutral rate, analysts suggest that the ECB will need to implement further cuts in the future to quickly reach neutral territory.

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