The European
Central Bank (ECB) decreased its deposit facility rate by 25 basis points to 2.75
per cent on Thursday, as widely predicted. That marked the fifth rate cut by
the ECB since it began easing monetary policy in June 2024.
In addition, the
ECB’s interest rates on its main refinancing operations and marginal lending
facility were reduced by 25 basis points each to 2.90 per cent and to 3.15 per
cent, respectively. Those moves also aligned with markets’ anticipations.
In its policy
statement, the ECB noted:
- Today’s
decision to lower rates is based on its
updated assessment of the inflation outlook, the dynamics of underlying
inflation and the strength of monetary policy transmission;
- Disinflation
process is well on track. Inflation is set to return to the Governing Council’s
2% medium-term target in the course of this year;
- Domestic
inflation remains high;
- Wage
growth is moderating as expected, and profits are partially buffering the
impact on inflation;
- Governing
Council’s recent interest rate cuts are gradually making new borrowing less
expensive for firms and households;
- Financing
conditions continue to be tight, as monetary policy remains restrictive and
past interest rate hikes are still transmitting to the stock of credit;
- Economy
is still facing headwinds;
-
Rising real incomes and the gradually fading effects of restrictive monetary
policy should support a pick-up in demand over time;
- Governing
Council will follow a data-dependent and meeting-by-meeting approach to
determining the appropriate monetary policy stance;
- Governing
Council is not pre-committing to a particular rate path;
- Governing
Council stands ready to adjust all of its instruments within its mandate to
ensure that inflation stabilises sustainably at its 2% target