ECB Reduces Rates by 0.25% – First Cut in Two Years

The ECB Governing Council has made the decision to cut the three benchmark interest rates by 0.25%. The rates on main refinancing operations, marginal refinancing operations, and deposits at the central bank will be raised to 4.25%, 4.50%, and 3.75% respectively. This marks the first cut in the reference rate in 8 years, with the last one occurring in March 2016 when rates were lowered to 0%. The rate on deposits also sees its first reduction in the cost of money since 2019.

ECB experts are predicting economic growth to increase to 0.9% in 2024, 1.4% in 2025, and 1.6% in 2026. The overall inflation is estimated to average 2.5% in 2024, 2.2% in 2025, and 1.9% in 2026. Inflation net of the energy and food component is projected to average 2.8% in 2024, 2.2% in 2025, and 2.0% in 2026.

During a press conference after the decision on rates, the President of the ECB, Christine Largade, stated that they will maintain a data-dependent approach and decide on rates meeting by meeting. She explained that based on an updated assessment of the inflation outlook, it is now appropriate to moderate the degree of monetary policy tightening after nine months of unchanged interest rates.

The Autonomous Federation of Bankers pointed out that banks have anticipated the expected rate reduction in the past months. This has already led to lower mortgage rates and consumer credit rates. The union predicts further reductions in rates in the coming months, leading to significant advantages for families in purchasing homes, cars, and household appliances.

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