The European
Central Bank (ECB) decreased its main refinancing rate by 25 basis points to
4.25 per cent on Thursday, as widely anticipated. The ECB’s interest rates on
the marginal lending facility and the deposit facility were also lowered by 25
basis points each to 4.50 per cent and 3.75 per cent, respectively. This marked
the ECB’s first interest-rate cut since 2019.
In its policy
statement, the ECB noted:
- Based on an
updated assessment of the inflation outlook, the dynamics of underlying
inflation and the strength of monetary policy transmission, it is now
appropriate to moderate the degree of monetary policy restriction after nine
months of holding rates steady;
- Despite the
progress over recent quarters, domestic price pressures remain strong as wage
growth is elevated, and inflation is likely to stay above target well into next
year;
- Latest
Eurosystem staff projections for both headline and core inflation have been
revised up for 2024 and 2025 compared with the March projections;
- Eurozone's
headline inflation is now predicted to average 2.5% in 2024, 2.2% in 2025 and
1.9% in 2026 while inflation excluding energy and food is projected to average
2.8% in 2024, 2.2% in 2025 and 2.0% in 2026;
- Eurozone's
economic growth is expected to pick up to 0.9% in 2024, 1.4% in 2025 and 1.6%
in 2026;
- ECB will keep
policy rates sufficiently restrictive for as long as necessary to achieve its
aim to return inflation to its 2% medium-term target;
- Governing
Council confirmed that it will reduce the Eurosystem’s holdings of securities
under the pandemic emergency purchase programme (PEPP) by EUR7.5 billion per
month on average over the second half of the year;
- Governing
Council stands ready to adjust all of its instruments within its mandate;
- Governing
Council will continue to follow a data-dependent and meeting-by-meeting
approach to determining the appropriate level and duration of restriction;
- Governing
Council is not pre-committing to a particular rate path