Traders are growing increasingly convinced that the European Central Bank will sharply lower interest rates to cushion the economy from a severe slowdown.

For the first time, money markets have priced in a full percentage point of interest-rate cuts for next year. That compares with a 75 basis-point decrease that was expected two months ago, according to swaps pricing tied to central bank meeting dates.

The latest leg of the repricing comes as UK retail sales unexpectedly fell in October and US data shows that unemployed workers are facing a tough time finding new jobs. Oil’s descent into a bear market has also reignited worries that the global economy is slipping closer to a recession.

Bonds added to a strong week of gains that’s seen Germany’s 10-year yield drop by almost 20 basis points to about 2.52%.

ECB’s Villeroy Says Slowing Inflation Justifies Halting Hikes

Even so, policymakers have repeatedly said it’s too early to start thinking about loosening monetary policy and plan to keep rates high for an extended period. But as evidence builds that an aggressive string of rate hikes is starting to take a toll on the economy, the market is proving hard to convince.

In a speech on Friday, Governing Council member Francois Villeroy de Galhau said the ECB’s decision to halt interest rate increases at its October meeting is fully justified by a slowdown in inflation. The pace of price increases has declined considerably and an underlying measure clearly passed a peak in the spring after the ECB began tightening last year, the Bank of France governor added.

More ECB officials are delivering remarks today, including President Christine Lagarde, who spoke in Frankfurt early Friday.

--With assistance from James Hirai.