ECB Cuts Money Cost by 25 Basis Points
Frankfurt confirmed expectations by announcing a second cut in 2024. A new operating framework was also introduced
At its September 12 meeting, the European Central Bank unanimously decided to ease monetary policy. Specifically, the deposit rate is being reduced by 25 basis points, from 3.75% to 3.50%.
“In addition, as announced on March 13 following the revision of the operational framework,” the ECB’s press release reads, “the difference between the interest rate on core refinancing operations and the central bank deposit rate will be set at 15 basis points. The spread between the marginal and main refinancing operations rate will remain unchanged at 25 basis points. Thus, the interest rate on central bank deposits will be reduced to 3.50%. The interest rates on core refinancing and margin refinancing transactions will be reduced to 3.65% and 3.90%, respectively. The changes will take effect on September 18, 2024.”
The Frankfurt institution has acted after assessing inflation dynamics: according to the latest data, overall inflation is estimated to average 2.5% in 2024, 2.2% in 2025, and 1.9% in 2026, as expected.
Core inflation estimates for 2024 and 2025 have been revised upward slightly due to higher-than-expected increases in service prices. However, base inflation is expected to decline fast: 2.9% in 2024, 2.3% in 2025, and 2.0% in 2026.
As for the projections for economic growth rates, they envision growth of 0.8% in 2024, 1.3% in 2025, and 1.5% in 2026.
Finally, the ECB Governing Council announced that it would “continue to follow a data-driven approach whereby decisions are made on a case-by-case basis at each meeting. In particular, interest rate decisions will be based on an assessment of the inflation outlook, taking into account new economic and financial data, the evolution of core inflation, and the intensity of monetary policy transmission, without reference to a specific rate trajectory.”