New ECB Rate Cut by 25 Basis Points
This is the fourth rate cut since June 2024, but the economy is growing less than expected
The European Central Bank (ECB) announced its fourth rate cut since it began easing monetary policy in June 2024. The institution, chaired by Christine Lagarde, decided to cut the cost of money by 25 basis points, thus bringing the deposit rate to 3%, the rate on main refinancing operations to 3.15%, and the rate on marginal loans to 3.40%.
“The disinflation process is well underway,” the ECB wrote in a press release. “Our experts estimate that overall inflation will average 2.4% in 2024, 2.1% in 2025, 1.9% in 2026, and 2.1% in 2027,” the ECB said. The EU’s enhanced emissions trading system comes into force this year. Inflation excluding energy and food components will average 2.9% in 2024, 2.3% in 2025, 1.9% in 2026 and 2027.
Despite monetary easing, “financing conditions remain tight as monetary policy remains restrictive and past interest rate hikes are still reflected in the amount of outstanding loans,” explains the institutions, based in Frankfurt, Germany, which also shows that the economic recovery is slower than indicated in its September forecasts. In fact, the forecasts point to economic growth of 0.7% in 2024, 1.1% in 2025, 1.4% in 2026, and 1.3% in 2027 with an increase in real incomes, which should lead to more consumption by families and more investment by businesses.
The Governing Council then reiterates that the objective is to stabilize inflation at around 2% and that the approach remains data-driven and therefore based on decisions made time after time.